Question

Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years, and has the ability to exercise significant influence over Devon. The following information relates to Larkin's investment in Devon during the most recent year: Carrying amount of Larkin's investment in Devon at the beginning of the year $200,000 Net income of Devon for the year $600,000 Total dividends paid to Devon's stockholders during the year $400,000 What is the carrying amount of Larkin's investment in Devon at year end?

Answer 1

The answer is: $250,000

Step-by-step explanation:

Larkin's investment can be calculated as follows:

carrying investment at the beginning of the year + share of profits form the year's operation - share of dividends paid during the year =

$200,000 + ($600,000 x 25%) - ($400,000 x 25%)=

$200,000 + $150,000 - $100,000 = $250,000