Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2014.During 2014,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2014?

Question

Quizplus · Accepted Answer

Pental owns 90% of Sedacor's common stock, so it has significant influence and must use the equity method to account for the investment. 
Beginning balance of investment: $400,000 
Add: Pental's share of Sedacor's net income ($130,000 x 90%): $117,000 
Less: Pental's share of Sedacor's dividends ($40,000 x 90%): $36,000 
Ending balance of investment: $481,000
Therefore, the answer is choice B.

Pental Corporation Bought 90% of Sedacor Company's Common Stock at Its