Question

During calendar 2020, Davel Corp. reported net income of $45,000 and paid total cash dividends of...

During calendar 2020, Davel Corp. reported net income of $45,000 and paid total cash dividends of $15,000. Ryan Inc. owns 2,250 of the 7,500 outstanding shares of Davel and exercises significant influence. What amount should Ryan show in the investment account at December 31, 2020 if the beginning of the year balance in the account was $60,000? $69,000 $60,000 $73,500 $90,000

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Answer #1

Total shares of Davel Corp. = 7,500

Number of shares acquired of Davel Corp.= 2,250

Percentage of shares acquired of Davel Corp. = Number of shares acquired of Davel Corp./Total shares of Davel Corp

= 2,250/7,500

= 30%

Beginning of the year investment balance = $60,000

Revenue from investment in Davel Corp. = Net income of Davel Corp.  x Percentage of common stock acquired

= 45,000 x 30%

= $13,500

Share of dividend from Davel Corp. = Dividend paid by Davel Corp. x Percentage of common stock acquired

= 15,000 x 30%

= $4,500

Balance in investment at December 31, 2020 = Beginning of the year investment balance + Revenue from investment in Davel Corp. - Share of dividend from Davel Corp.

= 60,000 + 13,500 - 4,500

= $69,000

First option is correct.

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