Question

Sheridan Company purchased 200 of the 1000 outstanding shares of Pina Company's common stock for $720000 on January 2, 2021. During 2021, Pina Company declared dividends of $60000 and reported earnings for the year of $520000. If Sheridan Company uses the equity method of accounting for its investment in Pina Company, its Equity Investments (Pina) account at December 31, 2021 should be:________

Answer 1

Answer: $812,000

Step-by-step explanation:

When a company uses the Equity method of Accounting to record investments, the balance in it's investment account will equal the original cost paid added to the Company's claim on the investee's income less the company's claim on the investee's dividends.

In a formula that would be,

= Cost of Shares + (Percentage of company owned * income) - (Percentage of company owned * dividends)

Sheridan Company purchased 200 of 1,000 shares meaning they own,

= 200/1,000

= 20%

Their balance for Equity Investments (Pina) account is therefore,

= 720,000 + (520,000 * 20%) - (60,000 * 20%)

= 720,000 + 104,000 - 12,000

= $812,000

Sheridan's Equity Investments (Pina) account at December 31, 2021 should be $812,000