Vision Corporation acquired 75 percent of the stock of Meta Company on January 1,2007,for $225,000.At that date,the fair value of the noncontrolling interest was $75,000.Meta's balance sheet contained the following amounts at the time of the combination:
During each of the next three years,Meta reported net income of $30,000 and paid dividends of $10,000.On January 1,2009,Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash.Vision used the basic equity method in accounting for its ownership of Meta Company.

-Based on the preceding information,what was the balance in the investment account reported by Vision on January 1,2009,before its sale of shares?

Question

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1,2007,for $225,000.At that date,the fair value of the noncontrolling interest was $75,000.Meta's balance sheet contained the following amounts at the time of the combination:
During each of the next three years,Meta reported net income of $30,000 and paid dividends of $10,000.On January 1,2009,Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash.Vision used the basic equity method in accounting for its ownership of Meta Company.
 
-Based on the preceding information,what was the balance in the investment account reported by Vision on January 1,2009,before its sale of shares?

Quizplus · Accepted Answer

The balance in the investment account reported by Vision on January 1, 2009, before its sale of shares can be calculated using the equity method as follows:

Initial Investment = $225,000
Share of Meta's net income (3 years) = $30,000 × 3 × 75% = $67,500
Share of Meta's dividends (3 years) = $10,000 × 3 × 75% = $22,500
Increase in Investment = $67,500 - $22,500 = $45,000
New Investment balance = $225,000 + $45,000 = $270,000

Therefore, the answer is D) $255,000 (which is the investment balance before subtracting the amount of cash received from the sale of shares).

Vision Corporation Acquired 75 Percent of the Stock of Meta