Question

On January 1, 2018, Deuce Inc. acquired 15% of Wiz Co.’s outstanding common stock for $62,400 and did not exercise significant influence. Wiz earned net income of $96,000 in 2018 and paid dividends of $36,000. The fair value of Deuce’s investment was $80,000 at December 31, 2018. On January 3, 2019, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave Deuce the ability to significantly influence the decision making of Wiz. During 2019, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2019, Wiz reported a net book value of $468,000. At the date of the second purchase, Deuce concluded that Wiz Co.’s book values approximated fair values and attributed any excess cost to goodwill. On Deuce's December 31, 2019 balance sheet, what balance was reported for the Investment in Wiz Co. account?

Answer 1

Answer: $143,400

Step-by-step explanation:

Investment balance as on December 31, 2019

Net book value = $468,000

Deuce investment = 25% of $468,000

= 0.25 × $468,000

= $117,000

Equity net income in 2018 = $96,000

Deuce net income = 15% of $96,000

= 0.15 × $96,000

= $14,400

Equity net income in 2019 = $120,000

Deuce net income = 10% of $120,000

= 0.1 × $120,000

= $12,000

Therefore,

Investment balance as on December 31, 2019:

= Deuce investment + Deuce net income in 2018 + Deuce net income in 2019

= $117,000 + $14,400 + $12,000

= $143,400