Question

Sandhill Company purchased 100 of the 1000 outstanding shares of Whispering Company's common stock for $560000...

Sandhill Company purchased 100 of the 1000 outstanding shares of Whispering Company's common stock for $560000 on January 2, 2021. During 2021, Whispering Company declared dividends of $80000 and reported earnings for the year of $360000. If Sandhill Company used the fair value method of accounting for its investment in Whispering Company, its Equity Investments (Whispering) account on December 31, 2021 should be?

$588000.

$552000.

$596000.

$560000

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Answer #1

Sand hill Co. purchased 100 of 1000 shares of Whispering Co.

It means it acquired 10% holdings

Dividend declared by Whispering Co. = $80,000

Dividend receivable = $8,000

Stocks acquiring cost = $560,000

Less : Dividend receivable = $8,000

Therefore, Fair value of stocks = $552,000.

In Fair Value method, income on investment is not booked in income but it is being deducted from the cost of Investment

Hence, Sand hill Co's Equity Investment will be recorded at $552,000.

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