On January 1, 2017, the Express Corporation purchased 30% of the common stock outstanding of the Bangor Corporation for $300,000. During 2017, the Bangor Corporation reported net income of $120,000 and paid cash dividends of $30,000. The balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2017, is
A) $300,000.
B) $330,000.
C) $420,000.
D) $327,000.

Question

Quizplus · Accepted Answer

Express Corporation purchased 30% of the common stock outstanding of the Bangor Corporation for $300,000, which gives them significant influence over Bangor. As a result, Express Corporation should account for its investment in Bangor using the equity method. The equity method requires that the investment be initially recorded at cost and subsequently adjusted each period for the investor's share of the investee's income or loss, as well as dividends paid.

Therefore, the adjusted balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2017, is calculated as follows:

Initial investment: $300,000
Express Corporation's share of Bangor's net income (30% × $120,000): $36,000
Less: Express Corporation's share of Bangor's dividends (30% × $30,000): ($9,000)
Adjustment to Stock Investments-Bangor account: $27,000
Adjusted balance of the Stock Investments-Bangor account on the books of Express Corporation at December 31, 2017: $327,000.

On January 1, 2017, the Express Corporation Purchased 30% of the Common