Posthorn Corporation acquired 20,000 of the 100,000 outstanding common shares of Stamp Company on January 1, 2019, for a cash consideration of $200,000. During 2019, Stamp Company had net income of $120,000 and paid dividends of $80,000. At the end of 2019, shares of Stamp Company were trading for $11 each. If Posthorn Corporation accounts for its significant influence investment in Stamp Company using the cost method, what will the balance in the Investment in Stamp Company be at December 31, 2019?

Question

Quizplus · Accepted Answer

Under the cost method, the investment is recorded at cost and is not adjusted for the investee's net income or dividends paid. Therefore, the balance remains at the initial investment cost of $200,000.

Posthorn Corporation Acquired 20,000 of the 100,000 Outstanding Common Shares