Question

On January 1, Belleville Company paid $2,295,000 to acquire 90,000 shares of O'Fallon’s voting common stock, which represents a 30 percent investment. No allocations to goodwill or other specific accounts were made. Significant influence over O'Fallon is achieved by this acquisition, and so Belleville applies the equity method. O'Fallon declared a $1 per share dividend during the year and reported net income of $750,000. What is the balance in the Investment in O'Fallon account found in Belleville’s financial records as of December 31?

Answer 1

In order to calculate the balance in the Investment in O'Fallon account found in Belleville’s financial records, we have to determine

• Acquisition cost
• Share of net income
• Dividends received

The acquisition cost will be added to the share of net income and the dividend received will be subtracted

Particulars Amount

Acquisition cost 2,295,000

Add: Share of net income $225,000 (750,000*30%)

Less: Dividends received $90,000 ($90,000*1)

Balance in the Investment in O'Fallon account $2,430,000