On January 1, 2017, Chic Corp. paid $750,000 for 100,000 shares of Toto Company's common stock, which represents 25% of Toto's outstanding common stock. Toto reported income of $300,000 and paid cash dividends of $80,000 during 2017 Chic should report the investment in Toto Company on its December 31, 2017, balance sheet at
A) $750,000
B) $825,000
C) $770,000
D) $805,000

Question

Quizplus · Accepted Answer

The carrying amount of the investment on December 31, 2017, should be equal to the initial cost plus the investor's share of the investee's income and dividends.

Initial cost = $750,000
Investor's share of income = 25% x $300,000 = $75,000
Investor's share of dividends = 25% x $80,000 = $20,000

Carrying amount = $750,000 + $75,000 - $20,000 = $805,000