Question

Gruen Corporation aquires a 25% interest in Blau Company for $1 million. The excess of investment cost over Gruen's share of the book value of Blau's net assets is solely attributable to goodwill. During the year, Blau reports income of $500,000 and declares dividends of $100,000. The carrying value of Gruen's investment at the end of the accounting period will be:

Answer 1

$1,100,000

Step-by-step explanation:

The carrying value of Gruen investment in the Blau Company as at the end of the accounting period shall be determined as follows:

Acquisition cost of investment in the Blau Company $1,000,000

Portion of the Gruen Corporation in Blau Company net income $125,000

($500,000*25%)

Dividends paid by the Blau company to the Gruen ($25,000)

($100,000*25%)

Carrying value of investment as the end of year $1,100,000