Ashley Company Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd,Inc.'s common stock for $60,000 on January 1,2010.During 2010,Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd,Inc.stock has increased to $32 per share.
If Ashley Company accounts for the investment as a minority,active investment and uses the equity method to account for the investment,the investment will appear in the December 31,2010 balance sheet at what amount?

Question

Quizplus · Accepted Answer

Under the equity method, the investment is initially recorded at cost and adjusted for the investor's share of the investee's earnings or losses and dividends.

- Cost of investment: $60,000 
- Investor's share of Judd's earnings: $75,000 x (2,000/10,000) = $15,000 
- Investor's share of Judd's dividends: $5 x 2,000 = $10,000

Therefore, the investment balance at the end of 2010 is:
$60,000 + $15,000 - $10,000 = $65,000

Option B is the correct answer.

Ashley Company Ashley Company Purchased 2,000 of the 10,000 Outstanding