Question

Frank Co. owns 30% of the voting common stock of Alex Services Inc. Frank uses the equity method to account for its investment. On January 1, 2021, the balance in the investment account was $800,000. During 2021, Alex Services reported net income of $150,000 and paid dividends of $40,000. Any excess of fair value over book value is attributable to goodwill with an indefinite life. What is the balance in the investment account as of December 31, 2021

Answer 1

$833,000

Step-by-step explanation:

Particulars Amount

Investment account balance January 1, 2021 $800,000

Add: 30% of Alex Services Inc $150,000 net income $45,000

Less: 30% of $40,000 dividends paid $12,000

Investment account balance December 31, 2021 $833,000