Question

On January 1, 2011, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2011 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011?

Answer 1

The balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011 is $2,071,500

Step-by-step explanation:

The computation of the investment balance is shown below:

= Investment amount + net income sharing percentage - dividend paid

where,

Investment amount = $1,920,000

Net income sharing percentage = Net income × given percentage

= $670,000 × 45%

= $301,500

And, the dividend paid equal to

= Number of shares × dividend per share

= 60,000 shares × $2.50

= $150,000

Now put these values to the above formula

So, the value would equal to

= $1,920,000 + $301,500 - $150,000

= $2,071,500