On January 3, 2020, Baxter, Inc. acquired 40% of the outstanding common stock of Anchor Co. for $2,800,000. This investment gave Baxter the ability to exercise significant influence over Anchor. Anchor's assets on that date were recorded at $11,700,000 with liabilities of $4,700,000. There were no other differences between book and fair values.During 2020, Anchor reported net income of $600,000. For 2021, Anchor reported net income of $900,000. Dividends of $350,000 were paid in each of these two years.What was the reported balance of Baxter's Investment in Anchor Co. at December 31, 2021?

Question

Quizplus · Accepted Answer

The investment account is increased by the share of net income and decreased by the share of dividends received. Baxter's share of Anchor's net income for 2020 is $240,000 (40% x $600,000) and for 2021 is $360,000 (40% x $900,000). Baxter's share of dividends received for 2020 and 2021 is $140,000 (40% x $350,000) each year. Therefore, the reported balance of Baxter's Investment in Anchor Co. at December 31, 2021 is $2,800,000 + $240,000 + $360,000 - $140,000 - $140,000 = $3,120,000.