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.

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Answer #1

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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