On January 1, 2019, East Company acquired 45% of Yellow Company's common stock for $3 million. During 2019, the market value of East's investment in Yellow Company increased to $3.25 million. On December 31, 2019, Yellow declared net income of $300,000. It also paid its stockholders a dividend of 20% of its 2019 income.
Required
a. How would you classify East Company's investment in Yellow Company? Explain.
b. What will East report on its income statement for the investment in Yellow for 2019?
c. What will be the ending balance of East's Investment account on December 31, 2019?

Question

On January 1, 2019, East Company acquired 45% of Yellow Company's common stock for $3 million. During 2019, the market value of East's investment in Yellow Company increased to $3.25 million. On December 31, 2019, Yellow declared net income of $300,000. It also paid its stockholders a dividend of 20% of its 2019 income. 
Required
a. How would you classify East Company's investment in Yellow Company? Explain.
b. What will East report on its income statement for the investment in Yellow for 2019?
c. What will be the ending balance of East's Investment account on December 31, 2019?

Quizplus · Accepted Answer

The Answer of On January 1, 2019, East Company acquired 45% of Yellow Company's common stock for $3 million. During 2019, the market value of East's investment in Yellow Company increased to $3.25 million. On December 31, 2019, Yellow declared net income of $300,000. It also paid its stockholders a dividend of 20% of its 2019 income. 
Required
a. How would you classify East Company's investment in Yellow Company? Explain.
b. What will East report on its income statement for the investment in Yellow for 2019?
c. What will be the ending balance of East's Investment account on December 31, 2019?

On January 1, 2019, East Company Acquired 45% of Yellow