On January 1, 20X8, William Company acquired 30 percent of eGate Company\'s comm

Question

On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment.

Based on the preceding information, what amount will be reported by William Company as balance in investment in eGate Company on December 31, 20X8, if it used the equity method of accounting?

$111,250

$118,750

$100,000

$122,500

Explanation / Answer

As william company acquired 30% common stock of E gate for $100000

Egate has only 5% cumulative prefered stock outstanding there is no equity shares

Here william company has to show Investment balance as on 31-12-2008 is $100000

because of company bought common stock not an equity share holding

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