On January 1,2014,Amber Inc.purchased 30 percent of the outstanding common stock of Collar Corporation for $516,000 cash.Amber is accounting for this investment using the equity method.On the date of acquisition,the fair value of Collar' net assets was $1,240,000.Amber has determined that the excess of the cost of the investment over its share of Collar' net assets is attributable to goodwill.Collar' net income for the year ended December 31,2014,was $360,000.During 2014,Collar declared and paid cash dividends of $40,000.There were no other transactions between the two companies.On December 31,2014,the investment in Collar should be recorded as

Question

Quizplus · Accepted Answer

Amber's share of Collar's net income for 2014 is 30% of $360,000, which equals $108,000. Amber's share of the dividends paid by Collar is 30% of $40,000, which equals $12,000. The investment account is increased by the share of net income and decreased by the share of dividends paid. Therefore, the investment account on December 31, 2014, is $516,000 (initial investment) + $108,000 (share of net income) - $12,000 (share of dividends) = $612,000.