Question

Pare, Inc. purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, Year 1, for $50,000. On December 31, Year 1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during Year 1. Tot reported earnings of $300,000 for Year 1. What amount should Pare report in its December 31, Year 1, Balance Sheet as investment in Tot?A. $170,000B. $200,000C. $230,000D. $290,000

Answer 1

B. $200,000

Step-by-step explanation:

The amount of Tot's shares held by Pare are not enough to justify equity (below 20%) method so it will only adjust the amount for changes in the fair value not when net income and cash dividends are know or declared.

$ 50,000 first purchase

$ 150,000 second purchase

$ 200,000 total investment