Question

On January 1, 2021, American Corporation purchased 30% of the outstanding voting shares of Short Supplies common stock for $222,000 cash. On that date, Short's book value and fair value were both $740,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2021, was $70,000. During 2021, Short also paid cash dividends in the amount of $19,000.

Required:
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2021. what is investment amount?

Answer 1

the amount that should be reported for the investment is $237,300

Step-by-step explanation:

The computation of the amount that should be reported for the investment is as follows:

= Original investment + net income share - cash dividend

= $222,000 + ($70,000 × 30%) - ($19,000 × 0.30)

= $222,000 + $21,000 - $5,700

= $237,300

hence, the amount that should be reported for the investment is $237,300