26) On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company\'s

Question

26) On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method.

What will be the balance in the Investment account as of Dec 31, 2017?

a) $150,000

b) $157,500

c) $154,500

d) $153,000

I know the answer is D but can you show me how you get to that with step by step?

Explanation / Answer

Calculate ending value of investment account :

Goodwill = 150000-(450000*30%) = 15000

Investment 150000 Add; net income (25000*30%) 7500 Less: Dividend (10000*30%) -3000 154500 Less: Goodwill amortization (15000/10) -1500 ENding investment balance 153000

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