StarTech Company bought 40% of AML Company on January 2, 2014, for their book value of $400,000.During 2014, AML earned net income of $60,000 and paid dividends of $16,000; there were no transactions between the two companies.What would be the balance in the Investment in AML Company account on StarTech Company's balance sheet on December 31, 2014?

Question

Quizplus · Accepted Answer

StarTech's share of AML's net income is 40% of $60,000, which is $24,000. StarTech's share of AML's dividends is 40% of $16,000, which is $6,400. The investment account increases by the share of net income and decreases by the share of dividends. Therefore, the balance is $400,000 + $24,000 - $6,400 = $417,600.

StarTech Company Bought 40% of AML Company on January 2