On January 2,Year 1,Barber Company purchased 5,000 shares of Convell Company for $60,500.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively.What is the book value of Barber's investment in Convell at the end of Year 2?
A)$60,500.
B)$79,800.
C)$52,000.
D)$88,300.
E)$87,300.

Question

Quizplus · Accepted Answer

First, we need to calculate the share of net income received by Barber Company in each of the two years:
Year 1: (5,000 shares / 25,000 shares) x $72,000 = $14,400
Year 2: (5,000 shares / 25,000 shares) x $67,000 = $13,400
Next, we need to adjust the investment for the dividends received:
Year 1: $60,500 + ($0.85 x 5,000 shares) = $64,250
Year 2: $64,250 + ($0.85 x 5,000 shares) = $67,000
Finally, we can calculate the book value of the investment at the end of Year 2:
$67,000 + Barber's share of Year 2 net income ($13,400) - Year 1 and Year 2 dividends received ($0.85 x 5,000 shares x 2) = $79,800. Therefore, the correct answer is B).

On January 2,Year 1,Barber Company Purchased 5,000 Shares of Convell