Indianapolis Corporation makes an equity-method investment in Richmond Inc. at a purchase price of $4.42 million cash, representing 30% (at book value) of Richmond Inc. During the year, Richmond reports net income of $5,280,500 and Indianapolis receives $877,500 of cash dividends from Richmond. At the end of the year, the market value of Indianapolis's investment is $4.03 million.
At year end, what does Indianapolis Corporation report on its balance sheet for its investment in Richmond Inc.?

Question

Quizplus · Accepted Answer

Indianapolis Corporation reports its investment at the original cost plus its share of Richmond's net income minus dividends received. Calculation: $4,420,000 + (30% of $5,280,500) - $877,500 = $5,126,650.

Indianapolis Corporation Makes an Equity-Method Investment in Richmond Inc