On 1 January 2016,Yu Ltd acquired 100 000 shares (30 per cent of the voting interest)in Ping Ltd for $900 000 cash.On 30 June 2016,Ping Ltd announced its earnings per share for the first six months of 2016 at $2.00 per share.On 20 November,Ping Ltd paid dividends to shareholders at $1.20 per share.On 31 December 2016,Ping Ltd announced its earnings per share for 2016 at $3.50 per share (i.e. ,$1.50 additional since 30 June).
-If Yu Ltd used the equity basis,what would be the balance sheet value of its investment in Ping Ltd at 31 December 2016?

Question

Quizplus · Accepted Answer

Under the equity method, the investment is initially recorded at cost and subsequently adjusted for the investor's share of the investee's profits or losses and dividends received. Yu Ltd's share of Ping Ltd's profits for 2016 is 30% of $3.50 per share, which equals $1.05 per share for the entire year. Since there are 100,000 shares, this amounts to $105,000 (100,000 shares * $1.05). Additionally, Yu Ltd would reduce the investment by the dividends received, which is 30% of $1.20 per share, equaling $0.36 per share or $36,000 in total (100,000 shares * $0.36). The investment's value at the end of the year would be the initial cost ($900,000) plus the share of profits ($105,000) minus the dividends received ($36,000), totaling $969,000. However, since none of the provided options match this calculation, and assuming the need to correct for the calculation approach or a possible misunderstanding in the calculation process, the closest correct option based on the equity method's principles and the given data would be to re-evaluate the calculation or the interpretation of the options provided. Given the discrepancy, a reevaluation or clarification of the calculation steps or the options might be necessary.

On 1 January 2016,Yu Ltd Acquired 100 000 Shares (30