Question

Beaver Inc. purchases 40 percent (8,000 shares) of DC Enterprises' outstanding common stock (20,000 shares), paying $120 per share. Later in the year, Beaver receives a dividend of $1.75 per share; at year-end Beaver receives DC's income statement showing that the company earned $62,000 for the year. For purposes of this problem, assume Beaver is able to exercise significant influence over DC and therefore uses the equity method. The DC stock is selling for $127 per share at year-end.

What is the ending balance of the DC stock on Beaver's BALANCE SHEET at year end?

a. 998,800
b. 970,800
c. 974,000
d. 1,016,000

Answer 1

Option C is the correct one.

Step-by-step explanation:

A: Under equity method, the balance shown will be = initial investment + dividend

`=8000 * 120+8000 * 1.75`

`=960000+14000=974,000`

Therefore, from the given options, C is the correct answer.

The value technique is a kind of bookkeeping utilized for intercorporate ventures. This technique is utilized when the speculator holds a huge impact over the investee yet doesn't practice full authority over it, as in the connection between a parent organization and its auxiliary. Right now, the wording of "parent" and "backup" is not utilized, dissimilar to the combination technique where the financial specialist applies full power over its investee. Rather, in occurrences where it's proper to utilize the value strategy for bookkeeping, the investee is regularly alluded to as a "partner" or "subsidiary".