On January 1, 2011, Argon Co.purchased 25% of Peroga Corp.'s common shares; no goodwill resulted from the purchase.Argon appropriately carries this investment at equity and the balance in Argon's investment account was $360,000 at December 31, 2011.Peroga reported net income of $225,000 for the year ended December 31, 2011, and paid dividends totaling $90,000 during 2011.How much did Argon pay for its 25% interest in Peroga?

Question

Quizplus · Accepted Answer

To find how much Argon paid, we can use the formula: 
Cost of investment = % of ownership x total value of company 
We know Argon purchased 25% of Peroga's common shares. Let X be the total value of Peroga Corp. 
So:
0.25X = Argon's investment balance at December 31, 2011 = $360,000 
Solving for X: 
X = $1,440,000

Therefore, Argon paid 25% of $1,440,000 for its investment: 
0.25 x $1,440,000 = $360,000

This is consistent with the balance in Argon's investment account at December 31, 2011.