Evan Company reports net income of $184,000 each year and declares an annual cas

Question

Evan Company reports net income of $184,000 each year and declares an annual cash dividend of $60,000. The company holds net assets of $2,150,000 on January 1, 2017. On that date, Shalina purchases 40 percent of Evan's outstanding common stock for $999,000, which gives it the ability to significantly influence Evan. At the purchase date, the excess of Shalina’s cost over its proportionate share of Evan’s book value was assigned to goodwill. On December 31, 2019, what is the Investment in Evan Company balance (equity method) in Shalina’s financial records?

(A) $1,219,800.

(B) $1,146,200.

(C) $1,195,800.

(D) $1,147,800.

Explanation / Answer

Increase in equity for Evan annually = (184000-60000)*40%= $49600 Increase in equity by December 31, 2019 = 49600*3= $148800 Investment in Evan Company balance on December 31, 2019 = 999000+148800= $1147800 Option D is correct

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