Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied?
A) $317,000.
B) $326,000.
C) $341,000.
D) $368,000.
E) $383,000.

Question

Quizplus · Accepted Answer

The Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied, is $317,000. This is calculated as follows:Beginning balance: $276,000Add: Share of Roberts' net income (2020: $50,000 x 100% = $50,000; 2021: $57,000 x 100% = $57,000) 107,000Less: Share of Roberts' dividends (2020: $12,000 x 100% = $12,000; 2021: $12,000 x 100% = $12,000) (24,000)Less: Amortization of excess fair value over book value (2020: $21,000; 2021: $21,000) (42,000)Ending balance: $317,000