Question

Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,300 and $165,550 at December 31, 2017 and 2018, respectively. During 2018 Clor recognized $75,750 of net income and paid dividends of $20,200. Assuming that Bloomfield owned the same percentage of Clor throughout 2018, their percentage ownership must have been (Round your answer to the nearest whole percent):

Multiple Choice

• 25%.

• 20%.

• 27%.

• 75%.

Answer 1

value of investment at Dec 31, 2017 = $150,300

Value of investment at Dec 31, 2018 = $165,550

Net income of Clor for 2018 = $75,750

Dividend paid by Clor for 2018 = $20,200

Let the percentage ownership in Clor be K%

Due to share of net income in Clor, value of investment will increase and due to share dividend from Clor, value of investment will decrease.

Value of investment at Dec 31, 2018 = value of investment at Dec 31, 2017 + Net income of Clor for 2018 x K% - Dividend paid by Clor for 2018 x K%

165,550 = 150,300 + 75,750 x K% - 20,200 x K%

165,550 - 150,300 = 55,550K%

K% = 15,250/55,550

K = 27%

Percentage ownership in Clor = 27%

Third option is the correct option