Question

Madison Corporation purchases an investment in Lake Geneva, Inc. at a purchase price of $10 million cash, representing 40% of the book value of Lake Geneva, Inc. During the year, Lake Geneva reports net income of $1,700,000 and pays $419,000 of cash dividends. At the end of the year, the market value of Madison’s investment is $12.0 million. What is the year-end balance of the equity investment in Lake Geneva? Select one: A. $12,000,000 B. $18,910,000 C. $10,480,000 D. $10,512,000 E. $10,000,000

Answer 1

Answer:

$ 10512000

Explanation:

The market value of Madison investment which is the aggregate value of the company's investment =$ 12 million

The book value = assets - liabilities = (1700000 - 419000) ×0.4 = $ 51240

The year-end balance = $ 51240 + $ 10 million = $ 10512000 approx