Consider the following facts: - At the beginning of the year, Company A paid $90
ID: 2449254 • Letter: C
Question
Consider the following facts: - At the beginning of the year, Company A paid $900,000 for an investment in the common stock of Company B. - The investment was for 87,500 shares. - The investment represents 35% of Company B's outstanding common stock. - Company B had net income of $300,000 for the year. - Company B paid cash dividends of $100,000 for the year. On Company A's books, the balance in the Investment in Company B account should have a balance of $ ____________. $900,000 None of these answers are correct. $970,000 $935,000 $1,005,000
Explanation / Answer
In the books of Company A Investment in Company B = Investment + 35%( Net income - dividend)
In the books of Company A Investment in Company B = $900,000 + 35%( $300,000 - $100,000) = $900,000 + $70,000 = $970,000
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