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On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at...

On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at $14 per share. Baltimore obtained significant influence as the purchase represents a 30% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $17,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $60,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $25 per share at the end of the year. Use this information to determine, how much Baltimore Company should report for its investment in Towson Company on December 31, 2018. (Round to the nearest dollar.)

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Answer #1

Purchase Cost = No. of Shares * Price per share

= 10,000 X 14 =$ 140,000

Share in dividend

Total Dividend by towson = $17,000

Share of Baltimore in dividend = $17,000 * 30% = $5,100

Share in Net Income of Towson:

Net income of Towson = $60,000

Share of Baltimore = 60,000*30% = $18,000

So value of investment in Towson company as on Dec 31

= Purchase Cost - Share in Dividend + Share in Income  

= 140,000 - 5,100 + 18,000

= $152,900

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