P Corporation purchased an 80% interest in S Corporation on January 1, 2016, at book value for $300,000. S's net income for 2016 was $90,000 and no dividends were declared. On May 1, 2016, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What would be the balance in the Investment of S Corporation account on December 31, 2016?
A) $300,000.
B) $225,000.
C) $279,000.
D) $261,000.

Question

Quizplus · Accepted Answer

The initial investment was $300,000. P sold a 20% interest (one-fourth of its 80% interest) for $90,000, reducing its investment by $75,000 (25% of $300,000). The remaining investment is $225,000. P's share of S's net income for 2016 is 60% of $90,000, which is $54,000. Adding this to the remaining investment gives $279,000.

P Corporation Purchased an 80% Interest in S Corporation on January