Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison Corporation's Long-Term Investment-Jay Corporation account as of December 31 should be:

Question

Quizplus · Accepted Answer

First, we need to calculate the proportionate share of net income earned by Madison Corporation in Jay Corporation. 
Proportionate Share of Net Income = 40% * $150,000 = $60,000 
Now, we need to adjust this amount for the dividends received by Madison Corporation during the year. 
Total Dividends Received = 40% * $30,000 = $12,000 
Adjusted Proportionate Share of Net Income = $60,000 - $12,000 = $48,000 
The balance in Long-Term Investment-Jay Corporation account as of December 31 will be:
Purchase Price + Adjusted Proportionate Share of Net Income = $125,000 + $48,000 
= $173,000 
Hence, the correct answer is option C - $173,000.

Madison Corporation Purchased 40% of Jay Corporation for $125,000 on January