Viejo Inc. earns $600,000 and pays cash dividends of $150,000 during 2014. Cruz Corporation owns 73,500 of the 210,000 outstanding shares of Viejo. What amount should Cruz show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $40,000?

Question

Quizplus · Accepted Answer

Cruz Corporation owns 35% of Viejo Inc. (73,500/210,000). Therefore, it should recognize 35% of Viejo's earnings and dividends. Earnings: $600,000 * 35% = $210,000. Dividends: $150,000 * 35% = $52,500. Increase in investment account = $210,000 - $52,500 = $157,500. Ending balance = $40,000 + $157,500 = $197,500.

Viejo Inc Earns $600,000 and Pays Cash Dividends of $150,000 During