Question

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $600,000 on January 2, 2018. During 2018, Darby Company declared dividends of $100,000 and reported earnings for the year of $400,000.If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2018 should be1. $580,000.2. $600,000.3. $660,000.4. $680,000.

Answer 1

$660,000

Step-by-step explanation:

The computation of the equity investment is shown below:

= (Common stock balance) + (Earnings × purchased shares ÷ Total outstanding shares) - (dividend × purchased shares ÷ Total outstanding shares)

= ($600,000) + ($400,000 × 200 shares ÷ 1,000 shares) - ($1,00,000 × 200 shares ÷ 1,000 shares)

= $600,000 + $8,0000 - $20,000

=$660,000