On January 1, 2015, Reston Company purchased 25% of Ace Corporation\'s common st

Question

On January 1, 2015, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston’s investment account was $1,120,000 at December 31, 2015. Ace reported net income of $700,000 for the year ended December 31, 2015, and paid common stock dividends totaling $280,000 during 2015. How much did Reston pay for its 25% interest in Ace?

a.   $1,015,000.

b.   $1,190,000.

c.   $1,225,000.

d.   $1,365,000.

Explanation / Answer

Share of reston in dividend distributed by ACE = 280000*0.25 i.e 70000

Value of dividend credited to investment account = 1120000

Total value of investment before dividend = 1120000+70000 i.e 1190000

Amount paid to ACE corporation = 1190000

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