Question

Pharoah Company purchased 200 of the 1000 outstanding shares of Sheridan Company's common stock for $520000 on January 2, 2021. During 2021, Sheridan Company declared dividends of $60000 and reported earnings for the year of $320000. If Pharoah Company used the fair value method of accounting for its investment in Sheridan Company, its Equity Investments (Sheridan) account on December 31, 2021 should be

Answer 1

$572,000

Step-by-step explanation:

Given:

Sheridan Company's common stock balance = $520000

reported earnings for the year = $320000

purchased shares = 200 shares

outstanding shares = 1000

declared dividends = $60000

Equity Investments (Sheridan) account = Common stock balance + (Earnings × purchased shares ÷ Total outstanding shares) - (dividend × purchased shares ÷ Total outstanding shares)

Plug in all the values

Equity Investments (Sheridan) account = ($520,000) + ($320,000 × 200 shares ÷ 1,000 shares) - ($60000 × 200 shares ÷ 1,000 shares)

= $520,000 + $64,000 - 12,000

= $572,000