On January 1, 2020, Scallop Corp. purchased 25% of Prawn Corp.'s common shares; no goodwill resulted from the purchase. Scallop correctly uses the equity method to account for this investment at equity. The Investment in Associate account related to the Scallop investment was reported on the December 31, 2020, statement of financial position at $ 360,000. Prawn had reported net income of $ 225,000 for calendar 2020, and paid dividends totalling $ 90,000 during 2020. How much did Scallop pay for its 25% interest in Prawn?

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Scallop's share of Prawn's net income for 2020 would be 25% of $225,000, which is $56,250. Scallop's share of the dividends paid by Prawn would be 25% of $90,000, which is $22,500. The Investment in Associate account increased by the share of net income ($56,250) and decreased by the share of dividends paid ($22,500), resulting in a net increase of $33,750 ($56,250 - $22,500). Therefore, the initial investment was $360,000 (the year-end balance) minus the net increase of $33,750, which equals $326,250.