On January 1, 2019, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for
2019 and 2020 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2019 and 2020 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2020, balance sheet at:

Question

Quizplus · Accepted Answer

TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000.

Net income reported by Alberta Power Pool Corporation for 2019 and 2020 was, respectively, $100,000 and $125,000.

So, TXU Europe Corporation's share of net income in 2019 would be $40,000 (40% of $100,000) and in 2020 would be $50,000 (40% of $125,000).

Dividends paid by Alberta Power Pool Corporation during 2019 and 2020 were, respectively, $60,000 and $75,000.

So, TXU Europe Corporation's share of dividends in 2019 would be $24,000 (40% of $60,000) and in 2020 would be $30,000 (40% of $75,000).

Therefore, the total balance of long-term investment at December 31, 2020 would be $836,000 ($800,000 initial investment + $90,000 share of net income - $105,000 share of dividends).

On January 1, 2019, TXU Europe Corporation Purchased 40% of the Outstanding