Question

On July 1, 2018, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,030,000 for the investment, and that amount is exactly equal to 40% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,400,000 for 2018, and paid $190,000 of dividends each quarter to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of:

Answer 1

Tremen's "Investment in Delany Company" account would have a balance of $3,158,000

Step-by-step explanation:

The computation is shown below:

= Investment value + share in income

where,

Share in income = (Net income - dividend paid in a year) × percentage given × (number of months ÷ total number of months in a year)

= ($1,400,000 - $760,000) × 40% × (6 months ÷ 12 months)

= $128,000

Dividend paid in a year = Dividend each quarter × number of quarters in a year

= $190,000 × 4 quarters

= $760,000

And we assume the book are closed on December 31, 2018 so we take 6 months from July to December

Now put the values to the above formula

So, the value is equal to

= $3,030,000 + $128,000

= $3,158,000