Question

The ABC Corporation invested $300,000 in 30 percent of TCo's common stock. The ABC Corporation accounts for investment with the equity method. During 20X4, TCo reported profits of $100,000 and paid cash dividends of $50,000. At the end of 20X4, the ABC Corporation's investment account for TCo would have a balance of:

1) $300,000
2) $315,000
3) $350,000
4) $400,000

Answer 1

The ABC Corporation's investment account for TCo at the end of 20X4 would have a balance of $315,000.

Step-by-step explanation:

The ABC Corporation's investment account for TCo at the end of 20X4 would have a balance of $315,000.

To calculate the balance, we start with the initial investment of $300,000 and add the share of TCo's profits and deduct the dividends received.

The share of profits is calculated by multiplying the profits of $100,000 by the ownership percentage of 30%, which gives $30,000. The investment balance is then increased by $30,000.

The dividends received are calculated based on the cash dividends of $50,000 and the ownership percentage of 30%, which gives $15,000. The investment balance is then decreased by $15,000.

Therefore, the final investment account balance for TCo would be $300,000 + $30,000 - $15,000 = $315,000.