Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2019,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2019:
- At what amount should Gilman Company report the Burke investment on the December 31,2019 balance sheet?

Question

Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1,2019,at $40 per share as a long-term investment.The records of Burke Corporation showed the following on December 31,2019: 
- At what amount should Gilman Company report the Burke investment on the December 31,2019 balance sheet?

Quizplus · Accepted Answer

Gilman Company should report the Burke investment at $4,218,000 on the December 31, 2019 balance sheet. This is because Gilman Company has significant influence over Burke and uses the equity method to account for its investment. Under the equity method, Gilman Company records its share of Burke's net income and dividends as income and dividends, respectively. As of December 31, 2019, Gilman Company's share of Burke's net income is $218,000, and its share of Burke's dividends is $0. Therefore, Gilman Company's investment in Burke should be increased by $218,000 and decreased by $0, resulting in a balance of $4,218,000.

Gilman Company Purchased 100,000 of the 250,000 Shares of Common