Champaign Corporation purchases 45% of the common stock of Rockville, Inc. at a purchase price of $21.6 million cash. During the year, Rockville reports net income of $2,960,000 and pays $544,000 of cash dividends. At the end of the year, the market value of Champaign's investment is $23.7 million.
What is the year-end balance of the equity investment in Rockville?

Question

Quizplus · Accepted Answer

The year-end balance of the equity investment in Rockville can be calculated by starting with the initial investment and then adding Champaign's share of Rockville's net income and subtracting Champaign's share of the dividends paid. Initial investment = $21.6 million. Champaign's share of Rockville's net income = 45% of $2,960,000 = $1,332,000. Champaign's share of dividends paid = 45% of $544,000 = $244,800. Therefore, the year-end balance = $21.6 million + $1,332,000 - $244,800 = $22,687,200.

Champaign Corporation Purchases 45% of the Common Stock of Rockville