Question

A Inc. uses the equity method of reporting its 40% investment in B. The balance in the Investment in B was $70,750 at January 1, 2015. During the next three years, B reported the following net earnings (losses) and dividends paid

	Net earnings (loss) $	Dividends paid $
2015	155,600	140,000
2016	35,700	140,000
2017	(123,400)	0

Required:

Calculate the balance of the Investment in B's account at December 31, 2017.

Answer 1

Solution:

Balance Jan. 1, 2015 ………………………………………………………………… $70,750

Proportionate share of earnings for 2015 - $155,600 x 40% …………………...…62,240

Dividends received during 2015 140,000 x 40% ……………………………….......(56,000)

Balance Dec. 31, 2015 ……………………………………………………………..… 76,990

Proportionate share of earnings for 2016 – 35,700 x 40% ………………………. 14,280

Dividends received during 2016 140,000 x 40% ……………………………….… (56,000)

Balance Dec. 31, 2016 …………………………………………………………………35,270

Proportionate share of losses for 2017- 123,400x40% = 49,360 but

there is only 35,270 in account …………………………………………………..…. (35,270)

Balance Dec. 31, 2017……………………………………………………………………   0