On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method. What will be the balance in the Investment account as of Dec 31, 2017?

Question

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The balance in the Investment account as of Dec 31, 2017, can be calculated as follows:1. Initial investment: $150,0002. Share of net income (30% of $25,000): $7,5003. Share of excess depreciation on buildings: The fair value adjustment for buildings is $50,000 ($500,000 fair value - $450,000 historical cost). The excess depreciation is $50,000 / 10 years = $5,000 per year. Puma's share is 30% of $5,000 = $1,500.4. Less share of dividends received (30% of $10,000): $3,000Therefore, the calculation is $150,000 + $7,500 - $1,500 - $3,000 = $153,000.

On January 1, 2017, Puma Corporation Acquired 30 Percent of Slume