Question

Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31, 2012 and 2013, respectively. During 2013 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2013, their percentage ownership must have been:

Answer 1

Bloomfield's percentage ownership in Clor is calculated by dividing the increase in Bloomfield's investment ($15,000) by Clor's net income ($80,000), resulting in an ownership percentage of 18.75%.

Step-by-step explanation:

To calculate the percentage ownership Bloomfield Bakers had in Clor Confectionary using the equity method, we need to understand the changes in the investment account of Bloomfield due to Clor's net income and dividends. Bloomfield's investment increased from $150,000 to $165,000. This $15,000 increase is due to Bloomfield's share of Clor's net income, which was $80,000, minus the dividends received, which were $30,000.

Bloomfield's share of Clor's net income is therefore $15,000 (the increase in the investment account), and to find out the ownership percentage, we would set up the following relationship: $15,000 / $80,000 = Bloomfield's percentage ownership in Clor. This results in Bloomfield owning 18.75% of Clor.