Question

Francis, Inc. acquired 40% of Park's voting stock on January 1, 2020 for $420,000. During 2020, Park earned $120,000 and paid dividends of $60,000. During 2021, Park earned $160,000 and paid dividends of $50,000 on April 1 and $40,000 on December 1. On July 1, 2021, Francis sold half of its stock in Park for $275,000 cash.The Equity Investment balance at December 31, 2020 is:a. $420,000b. $444,000c. $408,000d. $492,000

Answer 1

Answer:

correct answer is b. $444,000

Explanation:

given data

acquired = 40%

voting stock = $420,000

2020 Park earned =  $120,000

2021 Park earned =  $160,000

paid dividends = $50,000

paid dividends = $40,000

sold half of its stock in Park = $275,000

solution

we get here Balance at December 31 2020 that is express as

Balance at December 31  = Acquisition price  +  share in net income-share in dividend   .........................1

put here value we get

Balance at December 31  =  420000 + (120000 × 0.4) - (60000 × 0.4)

Balance at December 31  = 444000

so correct answer is b. $444,000