Question

On July 1, 2018, Tremen Corporation acquired 35% of the shares of Delany Company. Tremen paid...

On July 1, 2018, Tremen Corporation acquired 35% of the shares of Delany Company. Tremen paid $3,120,000 for the investment, and that amount is exactly equal to 35% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,000,000 for 2018, and paid $180,000 of dividends each quarter to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of:

Multiple Choice

  • $3,666,000.

  • $3,407,000.

  • $3,295,000.

  • $3,169,000.

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Answer #1

Solution:

The balance of investments of Tremen corporation in Delay company is calculated belows:

Particulars Amount Amount
Amount paid to acquire investments $3,120,000
Add: Share in income after dividends
Net income $1,000,000
Less: Yearly dividends($180,000*4) ($720,000)
Income after dividends $280,000

Share in income after dividends for 6 months

($280,000*35%*6/12)

 $49,000
Balance of investments of tremen corporation $3,169,000

Hence, the blance of investments of Tremen corporation in Delay company is $3,169,000

Correct option is $3,169,000

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