12. Prior Industries acquired an 80 percent interest in Sanderson Company by pur
ID: 2441946 • Letter: 1
Question
12. Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. Prior should record investment income from Sanderson during 2011 of: (Points: 4)$18,000.
$60,000.
$48,000.
$33,600.
13. Parkview Company acquired a 90% interest in Sutherland Company on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of: (Points: 4)
$335,000
$333,500
$313,700
$320,000
Explanation / Answer
1.To record income on investments under Equity method,Prior should record income during 2011 as cash 18000 investments 18000 2. investment in stockof Southerland comapny account at the end of 2011 as $335,000 investment 320000 net income afterdividends 15000 total 335,000
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