The Hammer Company paid $1,300,000 to purchase 35% of the outstanding stock of the Anvil Corporation. Anvil Corporation reports $425,000 of net income and paid a cash dividend of $115,000. These three events will increase Hammer Company's Investment account from $0 to:

Question

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The initial investment is $1,300,000. Hammer's share of Anvil's net income is 35% of $425,000, which is $148,750. Hammer's share of the dividend is 35% of $115,000, which is $40,250. The investment account increases by the net income share and decreases by the dividend share: $1,300,000 + $148,750 - $40,250 = $1,408,500.

The Hammer Company Paid $1,300,000 to Purchase 35% of the Outstanding