Young Company owns 30% of the voting shares of Grill Corporation.During the year, Grill paid $20,000 in dividends and reported $100,000 in net earnings.By how much did Young Company's investment account increase on their balance sheet?

Question

Quizplus · Accepted Answer

Young Company owns 30% of Grill Corporation, so they are entitled to 30% of the dividends and earnings.
Dividends: $20,000 x 30% = $6,000
Earnings: $100,000 x 30% = $30,000
Therefore, Young Company's investment account increased by $6,000 (dividends) + $30,000 (earnings) = $36,000.
However, the question specifically asks how much the investment account increased during the year, not the total balance. Therefore, we need to subtract the initial investment from the total increase: $36,000 - 12,000 (30% of Grill's initial value) = $24,000.

Young Company Owns 30% of the Voting Shares of Grill