On January 1, 2014, Grange Corporation purchased 25% of the common shares of Butler Limited for $200,000.During 2014, Butler Corporation reported net earnings of $80,000 and paid cash dividends of
$40,000.What is the balance of the Investment in Butler account on the books of Grange Corporation at
December 31, 2014?

Question

Quizplus · Accepted Answer

Grange Corporation purchased 25% of Butler Limited for $200,000 on January 1, 2014, and therefore it is classified as a long-term investment. During 2014, Butler reported net earnings of $80,000, and Grange Corporation would recognize its share of net earnings, which would be $20,000 ($80,000 x 25%). In addition, Grange Corporation would also recognize its share of the cash dividends paid by Butler Corporation of $10,000 ($40,000 x 25%). The investment in Butler account balance at December 31, 2014, would be calculated as follows:
Initial investment: $200,000
Add: 25% share of net earnings: $20,000
Less: 25% share of dividends: ($10,000)
Ending investment in Butler: $210,000

On January 1, 2014, Grange Corporation Purchased 25% of the Common