Question

Brown Corporation earns $600,000 and pays cash dividends of $200,000 during 2012. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2012 if the beginning of the year balance in the account was $800,000? Question 18 options: $980,000. $800,000. $920,000. $1,200,000.

Answer 1

Dexter should show a balance of $920,000 in the investment account at December 31, 2012.

Step-by-step explanation:

Assuming the investment in Brown Corporation remained unchanged throughout the year, Dexter should show a balance of $920,000 in the investment account at December 31, 2012. This can be calculated using the following formula:

New investment account balance = Beginning balance + (Proportion of earnings attributable to Dexter - Proportion of dividends received by Dexter)

Proportion of earnings attributable to Dexter = (Earnings of Brown Corporation * Number of shares owned by Dexter) / Total shares outstanding = ($600,000 * 3,000) / 10,000 = $180,000

Proportion of dividends received by Dexter = (Dividends paid by Brown Corporation * Number of shares owned by Dexter) / Total shares outstanding = ($200,000 * 3,000) / 10,000 = $60,000

New investment account balance = $800,000 + ($180,000 - $60,000) = $920,000

Answer 2

Answer: $920,000

Step-by-step explanation:

Given the following :

Beginning balance = $800,000

Brown's earning = $600,000

Casg Dividend = $200,000

Dexter's portion of brown's outstanding shares = 3000/ 10000 = 0.3

Therefore, Dexter's investment account is as follows :

Beginning balance + (earning × 0.3) - (Dividend × 0.3)

$800,000 + ($600,000 × 0.3) - ($200,000 × 0.3)

$800,000 + $180,000 - $60,000

$980000 - $60000 = 920000