Benjamin, Inc. bought 30% of Hoover Corp.’s outstanding common stock on January

Question

Benjamin, Inc. bought 30% of Hoover Corp.’s outstanding common stock on January 2, 2018, for $600,000. The carrying amount of Hoover’ net assets at the purchase date totaled $1,600,000. Fair values and carrying amounts were the same for all items except for plant, for which fair values exceeded their carrying amounts by $100,000. The plant has a ten-year life. During 2018, Hoover reported net income of $300,000 and paid a $50,000 cash dividend. Assume that Benjamin uses the equity method to account for this investment. What amount should Benjamin report its investment in Hoover in December 31, 2018 balance sheet?

a) $600,000

b) $672,000

c) $690,000

Explanation / Answer

As per the given information when it comes to the amount that Benjamin should report as investment in Hoover in December 31,2018/balance sheet will be option A $600,000 because it is the amount which he has paid to acquire the 30% outstanding common stock of Hoover on January 2 ,2018 and other factors relating to Hoover on later date need not be considered by Benjamin in this case for reporting his investment and Aldo he has not either sold any part of it , nor acquired and additional stock in.Hoover. Hence option A $600,000 will be the correct answer.

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