Question

On January 2, 2018, Baltimore Company purchased 20,000 shares of the stock of Towson Company at $13 per share. Baltimore obtained significant influence as the purchase represents a 35% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $25,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $65,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $23 per share at the end of the year. Use this information to determine, how much Baltimore Company should report for its investment in Towson Company on December 31, 2018. (Round to the nearest dollar.)

Answer 1

$344,000

Step-by-step explanation:

The computation of value of investment is shown below:-

Initial Cost of investments $260,000

(20,000 shares × $13)

Add: Share of profit $22,750

($65,000 × 35%)

Add: Increase in equity

reserves $70,000

(($23 - $13) × 20,000 × 35%)

Less: Dividends received $8,750

($25,000 × 35%)

Value of investment $344,000

Therefore the value of investment is $344,000