On January 3, 2019, Sheppard Corporation purchased 25% of Meredith Corporation's common stock for $64,000. The net asset's book value is equal to the fair market value. Meredith's net income for the years ended December 31, 2019 and 2020 were $18,000 and $56,000 respectively. Meredith declared no dividends during 2019; however, during 2020, the company declared a $70,000 dividend. On December 31, 2019, the fair value of Meredith's stock that Sheppard Corporation owned had increased to $71,000; in 2020, it increased again to $76,000. What would be the balance in the investment account as of December 31, 2020?

Question

Quizplus · Accepted Answer

Sheppard Corporation uses the equity method since it owns 25% of Meredith. The initial investment is $64,000. Add 25% of Meredith's 2019 net income ($18,000 * 25% = $4,500) and 2020 net income ($56,000 * 25% = $14,000). Subtract 25% of the 2020 dividend ($70,000 * 25% = $17,500). The balance is $64,000 + $4,500 + $14,000 - $17,500 = $65,000.

On January 3, 2019, Sheppard Corporation Purchased 25% of Meredith