On January 1, 2014, Beyonce Co. purchased 25,000 shares (a 10% interest) in Elto
ID: 2448412 • Letter: O
Question
On January 1, 2014, Beyonce Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,400,000. At the time, the book value and the fair value of John’s net assets were $13,000,000.
On July 1, 2015, Beyonce paid $3,040,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John’s identifiable assets net of liabilities was equal to their carrying amount of $14,200,000. As a result of this transaction, Beyonce owns 30% of John and can exercise significant influence over John’s operating and financial policies. Any excess fair value is attributed to goodwill.
John reported the following net income and declared and paid the following dividends.
Net Income
Dividend per Share
Determine the ending balance that Beyonce Co. should report as its investment in John Corp. at the end of 2015.
Net Income
Dividend per Share
Year ended 12/31/14 $700,000 None Six months ended 6/30/15 500,000 None Six months ended 12/31/15 815,000 $1.55Explanation / Answer
On Jan 1st 2014
Investment in John Corp (db) 1,400,000
Cash (cr) 1,400,000
In year end 2014 no dividend paid and the net income is $700,000 and share of Beyonce is 10% so the amount is $70,000
Total carrying amount of investment is $1,470,000
Befor Jul 1st 2015 half year the net icome is $500,000 and the shae of beyonce is 10% so amount is 50,000. Total carrying amount is $1,520,000
Jul 1st 2015
Investment in John Corp (db) 3,040,000
Cash (cr) 3,040,000
As of now the total investment in $1,520,000+3,040,000= $4,560,000
The net income which received is 30% of 815,000=244,500
Dividend rceived is 1.55*75000=$116,250
This has to be adjusted in the carrying amount
=4,560,000+244,500-116250= $4,688,250
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