On January 1, 20X1, Company P purchased a 30% interest in the Company S for $345,000.At that time, Company S had stockholders' equity of $1,000,000.Any excess cost over book value was attributed to a patent with a 15-year life.During 20X1, Company S earned $60,000 and paid dividends of $15,000.What is the balance in the investment account on December 31, 20X1, using the sophisticated equity method?
A)$363,000
B)$360,000
C)$355,500
D)$349,500

Question

On January 1, 20X1, Company P purchased a 30% interest in the Company S for $345,000.At that time, Company S had stockholders' equity of $1,000,000.Any excess cost over book value was attributed to a patent with a 15-year life.During 20X1, Company S earned $60,000 and paid dividends of $15,000.What is the balance in the investment account on December 31, 20X1, using the sophisticated equity method?
A)$363,000
B)​$360,000
C)​$355,500
D)​$349,500

Quizplus · Accepted Answer

The initial investment is $345,000. The investor's share of Company S's earnings is 30% of $60,000, which is $18,000. The investor's share of dividends is 30% of $15,000, which is $4,500. The amortization of the patent is $345,000 - $300,000 (30% of $1,000,000) = $45,000 excess, amortized over 15 years, which is $3,000 per year. The balance is $345,000 + $18,000 - $4,500 - $3,000 = $355,500.

On January 1, 20X1, Company P Purchased a 30% Interest