On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook Company

Question

On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on January 1, 2011, was $1,150,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over five years. Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income Dividends 2010 $200,000 $50,000 2011 225,000 50,000 2012 250,000 60,000 On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.

Questions:

What was the balance in the investment account at Dec 31, 2011?

What was the balance in the investment account at April 1, 2012 just before the sale of shares?

How much of Cook's net income did Mehan report for the year 2012?

Please show work :)

Explanation / Answer

What was the balance in the investment account at Dec 31, 2011?

Answer

$157,500

What was the balance in the investment account at April 1, 2012 just before the sale of shares?

Answer

$558,375

How much of Cook's net income did Mehan report for the year 2012?

$59,250

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