On January 1,2019,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation common stock at a cost of $150,000.Turtle uses the equity method of accounting for this investment.During 2019,Shell Corporation reported $40,000 of net income and paid a total of $5,000 in cash dividends.At the end of 2019,the shares had a fair value of $160,000.
-What investment balance will be reported on Turtle's December 31,2019 balance sheet?
A)$150,000.
B)$162,000.
C)$160,500.
D)$170,500.

Question

On January 1,2019,Turtle Inc.bought 30% of the outstanding shares of Shell Corporation common stock at a cost of $150,000.Turtle uses the equity method of accounting for this investment.During 2019,Shell Corporation reported $40,000 of net income and paid a total of $5,000 in cash dividends.At the end of 2019,the shares had a fair value of $160,000. 
-What investment balance will be reported on Turtle's December 31,2019 balance sheet?
A)$150,000.
B)$162,000.
C)$160,500.
D)$170,500.

Quizplus · Accepted Answer

The investment balance reported on Turtle's balance sheet at the end of the year is calculated as follows:

Initial investment cost = $150,000 
Proportionate share of net income (30% x $40,000) = $12,000 
Cash dividends received (30% x $5,000) = ($1,500) 
Change in fair value of investment = $10,000

Total investment balance = $150,000 + $12,000 - $1,500 + $10,000 = $160,500

Therefore, the correct answer is C) $160,500.