On January 1, 2021 M.T. Glass purchased the following investments: 1. 7,500 shares (representing 15%) of ZZ Company stock for $98,000 2. 25,000 shares (representing 40%) of AA Company stock for $440,000 M.T. Glass recorded the sale of some of its investments in 2022 as follows: 1. September 1 sold 5,000 shares of the ZZ Company stock for $76,000 2. December 31 sold 4,000 shares of the AA Company stock for $120,000 AA Company and ZZ Company reported the following information for the years 2021 and 2022: AA Company ZZ Company Net income in 2021 $260,000 $200,000 Dividends paid to M.T. Glass in 2021 $24,000 $15,000 Market value at Dec 31, 2021 $27 per share $22 per share Net income in 2022 $160,000 $225,000 Dividends paid to M.T. Glass in 2022 $41,000 $5,000 Market value at Dec 31, 2022 $24 per share $28 per share Calculate the balance in the Investment in AA Company account at December 31, 2021.
Using the equity mehtod , the value of balance in the investment is AA can be Calculated as below
Please mind that MT Glass has not sold any of its investments in the year from Jan 2021 to Dec 2021 and has only received dividend
Value of 25,000 shares or 40% of the company as on 1st jan 2021 is $440,000. The net income for AA during 2021 is 260,000 and Dividend paid is $24000. So the net income after divident is 260,000 minus 24,000 which is 236,000. 40% of this is the increase in value of investments in AA for MT Glass i.e. 40% of 2,36,000 = 94,400.
So total value of investment in AA account at the end of 2021 is 440,000$ + 94,400 $ = $ 534,400
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