On January 1,2014,Jeff Company purchased common stock in Garcia Company for $1,000,000.Jeff Company treats the investment as available-for-sale securities.During 2014,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jeff Company owns 10% of the outstanding shares of Garcia Company.The market value of the investment at December 31,2014 is $1,100,000.What is the balance in the Investment account at December 31,2014?
A) $1,000,000
B) $1,100,000
C) $1,400,000
D) $1,500,000

Question

Quizplus · Accepted Answer

Since Jeff Company treats the investment as available-for-sale securities, the increase in market value of the investment is recorded as an unrealized gain in other comprehensive income. Therefore, the Investment account will remain at its initial cost of $1,000,000 plus any dividend income received during the year, which is $100,000 ($1,000,000 x 10% x 10%). Thus, the balance in the Investment account at December 31, 2014 is $1,100,000.

On January 1,2014,Jeff Company Purchased Common Stock in Garcia Company