Question

Analyzing and Interpreting Equity Method Investments

Concord Company purchases an investment in Bloomingdale Company at a purchase price of $2 million cash, representing 30% of the book value of Bloomingdale. During the year, Bloomingdale reports net income of $300,000 and pays cash dividends of $90,000. At the end of the year, the market value of Concord’s investment is $2.4 million.

a. What amount does Concord report on its balance sheet for its investment in Bloomingdale? $Answer

b. What amount of income from investments does Concord report? $Answer

c. Concord’s $364,000 unrealized gain in the market value of the Bloomingdale investment (choose one):

(1) Is not reflected on either its income statement or balance sheet.

(2) Is reported in its current income.

(3) Is reported on its balance sheet only.

(4) Is reported in its accumulated other comprehensive income.

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follows:-

a) Reported amount in balance sheet

Particular Amount ($)

Investment in company $2,000,000

Add - Net income($3,00,000 × 30 ÷ 100) $90,000

Less - Dividend paid($90,000 × 30 ÷ 100) (-$27,000)

Total Reported Amount in Balance Sheet $2,063,000

b) Amount of income from investment is $90,000

c) Choose option 1 is not reflected on either its income statement or balance sheet.