On January 1,2016,TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000.Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was,respectively,$100,000 and $125,000.Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were,respectively,$60,000 and $75,000.The long-term investment will appear on TXU Europe Corporation's December 31,2016,balance sheet at:

Question

Quizplus · Accepted Answer

The investment is accounted for using the equity method. Initial investment is $800,000. Add 40% of 2016 net income ($100,000 * 40% = $40,000) and subtract 40% of 2016 dividends ($60,000 * 40% = $24,000). $800,000 + $40,000 - $24,000 = $816,000.

On January 1,2016,TXU Europe Corporation Purchased 40% of the Outstanding