On January 1, 2010, Bartley Corp. paid $800,000 for 100,000 shares of Oak Company's common stock, which represents 40% of Oak's outstanding common stock. Oak reported net income of $200,000 and paid cash dividends of $60,000 during 2010. Bartley should report the investment in Oak Company on its December 31, 2010, balance sheet at:

Question

Quizplus · Accepted Answer

Bartley Corp. should use the equity method since it owns 40% of Oak. The investment is initially recorded at cost ($800,000), increased by Bartley's share of Oak's net income (40% of $200,000 = $80,000), and decreased by dividends received (40% of $60,000 = $24,000). Thus, the investment is reported at $800,000 + $80,000 - $24,000 = $856,000.