Question

# On July 1, 2018, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid...

On July 1, 2018, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid \$3,100,000 for the investment, and that amount is exactly equal to 40% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of \$1,100,000 for 2018, and paid \$150,000 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

\$3,720,000.

\$3,480,000.

\$3,320,000.

\$3,200,000.

The balance of investments of Tremen corporation in Delany company is calculated below

 Amount paid to acquire investments 3,100,000 Add: share in income after dividends Net income \$1,100,000 Less: Yearly dividends (150,000*4) (\$600,000) Income after dividends \$500,000 Share in income after dividends for 6 months (\$500,000 * 40% * 6/12) \$100,000 Balance of investments of Tremen corporation \$3,200,000

Hence, the balance of investments of Tremen corporation in Delany company is \$3,200,000

Thus the correct option is \$3,200,000

thank you

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