Tansent Finance Ltd. acquired 30% of Morton Corp.'s common shares on January 1, 20X1 for $240,000. During 20X1, Morton earned $100,000 and paid dividends of $60,000. Tansent's 30% interest in Morton gives Tansent the ability to exercise significant influence over Morton 's operating and financial policies. During 20X2, Morton earned $120,000 and declared dividends of $40,000 on April 1 and $40,000 on October 1. On July 1, 20X2, Tansent sold half of its shares in Morton for $158,000 cash.

-The carrying amount of this investment in Tansent's December 31, 20X1 statement of financial position should be
A) $240,000
B) $252,000
C) $270,000
D) $275,000

Question

Tansent Finance Ltd. acquired 30% of Morton Corp.'s common shares on January 1, 20X1 for $240,000. During 20X1, Morton earned $100,000 and paid dividends of $60,000. Tansent's 30% interest in Morton gives Tansent the ability to exercise significant influence over Morton 's operating and financial policies. During 20X2, Morton earned $120,000 and declared dividends of $40,000 on April 1 and $40,000 on October 1. On July 1, 20X2, Tansent sold half of its shares in Morton for $158,000 cash.

-The carrying amount of this investment in Tansent's December 31, 20X1 statement of financial position should be

-The carrying amount of this investment in Tansent's December 31, 20X1 statement of financial position should be
A) $240,000
B) $252,000
C) $270,000
D) $275,000

Quizplus · Accepted Answer

Tansent's investment in Morton would be accounted for using the equity method due to the ability to exercise significant influence. The carrying amount at December 31, 20X1, would be the initial investment of $240,000 plus 30% of Morton's earnings ($100,000 * 30% = $30,000) minus 30% of the dividends paid ($60,000 * 30% = $18,000). Therefore, the carrying amount is $240,000 + $30,000 - $18,000 = $252,000.