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, 2019, balance sheet at:

Question

Quizplus · Accepted Answer

The investment will appear as $816,000 on the December 31, 2019, balance sheet. This is calculated by starting with the initial investment of $800,000, adding 40% of Alberta Power Pool Corporation's net income for 2019 ($100,000 * 40% = $40,000), and then subtracting 40% of the dividends paid in 2019 ($60,000 * 40% = $24,000). Therefore, the adjusted investment value is $800,000 + $40,000 - $24,000 = $816,000.

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