Question

On January 1, Puckett Company paid $1.6 million for 50,000 shares of Harrison's voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $2 per share during the year and reported net income of $560,000. What is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31?

Answer 1

Answer: the correct answer is $1,724,000

Explanation: $560,000 x 0.40= 224,000 (net income times percentage of Harrison's voting common stock)

$2/ share x 50,000= (100,000) (the company paid 2$ dollars per share and there are 50000 shares)

1.6 million + 224,000 - 100,000= $1,724,000