On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment.
-Based on the preceding information,what amount would be reported by William Company as the balance in its investment account on December 31,20X8?
A) $100,000
B) $123,400
C) $120,400
D) $142,000

Question

Quizplus · Accepted Answer

William Company's investment in eGate Company on December 31, 20X8, is $123,400, computed as follows:Investment on January 1, 20X8                               $100,000Share of eGate's net income for 20X8 (30%)                 45,000Share of eGate's dividends for 20X8 (30%)                 (21,600)Balance in investment account on December 31, 20X8   $123,400

On January 1, 20X8, William Company Acquired 30 Percent of EGate