Question

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
What is the balance in Cale's investment in subsidiary account at the end of 2010?

Answer 1

The balance in Cale's investment in subsidiary account at the end of 2010 is $1,098,000, after initially investing $1,020,000, adding Kaltop's net income share of $126,000, and subtracting dividends received of $48,000.

Step-by-step explanation:

To calculate the balance in Cale's investment in a subsidiary account at the end of 2010, after acquiring Kaltop Co., we need to account for the initial investment, the share of net income, and dividends paid by Kaltop. Initially, Cale Corp. paid $1,020,000 for the investment. During 2010, Kaltop earned net income of $126,000 and Cale would recognize its share of this income, increasing the investment account. However, Kaltop also paid dividends of $48,000, which would decrease the investment balance on Cale's books.

The balance in the investment account is calculated as follows:

• Initial Investment: $1,020,000
• Add: Share of Net Income: $126,000
• Less: Dividends Received: $48,000

The ending balance would be:

$1,020,000 + $126,000 - $48,000 = $1,098,000

Therefore, the balance in Cale's investment in subsidiary account at the end of 2010 is $1,098,000.