Question

On December 31, 2016, Osborn Company purchased 30% of Shea Company’s common stock for $220,000. During 2017, Shea Company had a net income of $75,000 and paid cash dividends of $30,000. What would the balance of Osborn’s Equity Investment (Shea) account be at the end of 2017 if they use the equity method?A. $242,500 B. $211,000 C. $220,000 D. $233,500

Answer 1

the balance of Osborn’s Equity Investment (Shea) account be at the end of 2017 is $233,500

Explanation:

Given data

Acquistion price = $220000

purchased = 30%

net income = $75,000

cash dividends = $30,000

to find out

the balance of Osborn’s Equity Investment (Shea) account be at the end of 2017

solution

we will find out balance of investment i.e. given by formula

balance of investment = Acquistion price + share of income - share of dividend .................1

so here

share of income = 30% of net income

share of income =30% × 75,000 = $22500 ..............2

and

share of dividend = 30% of cash dividends

share of dividend = 30% × 30000 = $9000 ...............3

put equation 2 and 3 in equation 1 and we get

balance of investment = Acquistion price + share of income - share of dividend

balance of investment = 220000 + 22500 - 9000

balance of investment = $233,500