On January 1, 2016, Avery Corp. purchased 25% of the voting common stock of Glen

Question

On January 1, 2016, Avery Corp. purchased 25% of the voting common stock of Glenn Co., paying $2,750,000. Avery will use the equity method to account for this investment. At the time of the investment, Glenn Co. total stockholders’ equity had a book value of $10,000,000. Avery gathered the following information about Glenn Co. assets and liabilities: For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired. For the year Glenn Co. realized $800,000 of net income and paid dividends of $200,000. Prepare an analysis of Avery's Investment in Glenn Co. Account starting with the beginning balance as of 1/1/2016 and concluding with the ending balance as of 12/31/2016. SHOW ALL WORK IN SUPPORT OF YOUR ANSWER IN GETTING THE ENDING BALANCE

Explanation / Answer

Investment in Genn Co. Beginning balance as of 1/1/2016 0 Add: Purchase of investment 2750000 Add: Share in net income ($25% x $800000) 200000 Less: Dividends received (25% x $200000) -50000 Ending balance as of 12/31/2016 2900000

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