Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2016. Sands reported net income in 2016 of $45,000 and in 2017 of $60,000 earned evenly throughout the respective years. Prime received $12,000 dividends from Sands in 2016 and $18,000 in 2017. Prime uses the equity method to record its investment. The balance of Prime's Investment in Sands account at December 31, 2017 is:

Question

Quizplus · Accepted Answer

The balance of Prime's Investment in Sands account at December 31, 2017 is $159,000. This is calculated as follows:Beginning balance: $105,000Add: Share of Sands' net income (80% x $45,000) = $36,000Add: Share of Sands' net income (80% x $60,000) = $48,000Less: Dividends received = $30,000Ending balance: $159,000

Prime Industries Acquired an 80 Percent Interest in Sands Company