On January 2, 2015 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2015 Jobs, Inc. reported net income of $840,000 and distributed dividends of $360,000. The ending balance in the Investment in Pod Company account at December 31, 2015 was $640,000 after applying the equity method during 2015. What was the purchase price Pod Company paid for its investment in Jobs, Inc?

Question

Quizplus · Accepted Answer

The purchase price can be calculated by adjusting the ending balance for the share of net income and dividends. Ending balance ($640,000) = Purchase price + 25% of net income ($210,000) - 25% of dividends ($90,000). Solving gives a purchase price of $520,000.

On January 2, 2015 Pod Company Purchased 25% of the Outstanding