On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson’s assets, liabilities, and stockholders' equity accounts on January 1, 2020:
Book Value |
Fair Value |
|||||
Current assets | $ | 130,000 | $ | 130,000 | ||
Land | 75,000 | 193,000 | ||||
Building (twenty year life) | 250,000 | 276,000 | ||||
Equipment (ten year life) | 540,000 | 518,000 | ||||
Current liabilities | 26,000 | 26,000 | ||||
Long-term liabilities | 124,000 | 124,000 | ||||
Common stock | 233,000 | |||||
Additional paid-in capital | 389,000 | |||||
Retained earnings | 223,000 | |||||
Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.
What is the balance in Barber’s investment in subsidiary account at the end of 2020?
Multiple Choice
$1,243,900.
$1,294,000.
$1,242,100.
$1,243,000.
Solution: | ||
CALCULATION OF VALUE OF INVESTMENT IN SUBSIDIARY ACCOUNT | ||
AT THE END OF 2020 | ||
Purchase value of investment as on Jan.01 2020 | $ 1,160,000 | |
Add: Net income of the Year 2020 | $ 134,000 | |
Less: Dividend Paid during the year | $ (51,000) | |
Balance of investment at the end of 2020 | $ 1,243,000 | |
Answer = Option 4 = $ 1,243,000 | ||
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