At the beginning of 2013, Ridley Ltd. acquired 25% of the voting shares of Gasser Co. for $150,000. Ridley has significant influence over Gasser. In 2013, Gasser earned net income of $70,000 and paid dividends of $40,000. In 2014, Gasser earned net income of $80,000 and paid dividends of $100,000. At the end of 2014, what is the balance of Ridley's "Investment in Gasser" account?

Question

Quizplus · Accepted Answer

In 2013, Ridley received $17,500 in dividends (25% of $40,000) and recognized $17,500 in income (25% of $70,000). This leads to a year-end balance of $185,000 ($150,000 original investment + $17,500 in dividends + $17,500 in income). 
In 2014, Ridley received $25,000 in dividends (25% of $100,000) and recognized $20,000 in income (25% of $80,000). This leads to a balance of $152,500 ($185,000 beginning balance + $20,000 in income - $25,000 in dividends). Therefore, the correct answer is (C).

At the Beginning of 2013, Ridley Ltd