Question

On January 1, 2018, Fisher Corporation paid $2,440,000 for 34 percent of the outstanding voting stock of Steel, Inc., and appropriately applies the equity method for its investment. Any excess of cost over Steel's book value was attributed to goodwill. During 2018, Steel reports $676,000 in net income and a $1,065,000 other comprehensive income loss. Steel also declares and pays $20,000 in dividends. What amount should Fisher report as its Investment in Steel on its December 31, 2018, balance sheet

Answer 1

The amount that Fisher should report as its investment in steel on its December 31, 2018 balance sheet should be $2,300,940.

Step-by-step explanation:

For calculating the investment of Fisher in 2018 can be calculated by adding the equity income which they will get on the net profit made by steel according to their holding which is given as 34% and subtracting the other comprehensive income loss and dividend declared both according to their holding of 345 from the purchase price of the outstanding stocks.

INVESTMENT AMOUNT =

PURCHASE PRICE = $ 2,440,000

EQUITY INCOME (+) = $ 676,000 X 34%

= $ 229,840

LOSS ON OTHER = $ 1065,000 X 34%

COMPREHENSIVE INCOME (-)

= ($ 362,100)

DIVIDENDS DECLARED (-) = $ 20,000 X 34%

= ($ 6800)

INVESTMENT AT END OF YEAR =

$2440,000 + @229,840 - $362,100 - $6800

= $2,300,940