Question

On July 1, 2018, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,160,000 for the investment, and that amount is exactly equal to 40% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,200,000 for 2018, and paid $150,000 of dividends each quarter to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of:

Answer 1

$3,280,000

Step-by-step explanation:

The computation of balance of investments is given below:-

Income after dividends = Net income - Yearly dividends

= $1,200,000 - ($150,000 × 4)

= $600,000

Balance of investments = Amount paid to acquire investments + Share in income after dividends for 6 months

=$3,160,000 + ($600,000 × 40% × 6 ÷ 12)

= $3,160,000 + $120,000

= $3,280,000

Therefore for computing the balance of investments we simply aaplied the above formula.