Kim Company bought 40% of the shares of Phelps, Inc., at the start of 2018. Kim

Question

Kim Company bought 40% of the shares of Phelps, Inc., at the start of 2018. Kim paid $22 million for the shares. Forty percent of the book value of Phelps’s net assets is $15 million, and the difference of $7 million is due to land that Phelps owns that has appreciated in value. During 2018, Phelps reported net income of $6 million and paid a cash dividend of $5.4 million.

What amount does Kim carry the Phelps investment on its balance sheet as of December 31, 2018? (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Explanation / Answer

CALULATION OF INVESTMENT VALUE (INVESTMENT METHOD) Investment Value = $                  22.00 Million Less: Share in Net Income ( $ 6 Million X 40%) $                     2.40 Million Balance in the investment account Dec, 31 2018 $                  19.60 Million Share in Dividend will report as invesment income of the year in revenue account Dividend Value ($ 5.4 Million X 40% )                         2.16 Million CALULATION OF INVESTMENT VALUE (EQUITY METHOD) Investment Value = $                  22.00 Million Less: Share in Net Income ( $ 6 Million X 40%) $                     2.40 Million Less: 'Dividend Value ($ 5.4 Million X 40% )                         2.16 Million Balance in the investment account Dec, 31 2018 $                  17.44 Million Answer = $ 17.44 Million will show in the balance sheet in investment account

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.