Orlov Corporation purchased 8,500 shares of Matsey Corporation common stock for $40 per share on January 1,2012.Matsey reported net income of $120,000 for 2012 and paid dividends of $45,000 during 2012.As of December 31,2012,the market value of Matsey Corporation common stock was $40 per share.Assuming the shares owned by Orlov represent 30 percent of the total outstanding stock of Matsey,Orlov Corporation should report the long-term investment on December 31,2012,at a carrying value of

Question

Quizplus · Accepted Answer

The correct answer is A because the carrying value of the long-term investment is the cost of the investment plus the share of net income minus the share of dividends received. The cost of the investment is $40 per share x 8,500 shares = $340,000. The share of net income is 30% x $120,000 = $36,000. The share of dividends received is 30% x $45,000 = $13,500. Therefore, the carrying value of the long-term investment is $340,000 + $36,000 - $13,500 = $362,500.

Orlov Corporation Purchased 8,500 Shares of Matsey Corporation Common Stock