On January 1, 2014, 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 2014 and 2015 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2014 and 2015 were, respectively, $60,000 and $75,000. The long-term investment will appear on TXU Europe Corporation's December 31, 2014, balance sheet at:

Question

Quizplus · Accepted Answer

The investment is accounted for using the equity method. Initial investment is $800,000. Add 40% of 2014 net income ($100,000 * 40% = $40,000) and subtract 40% of 2014 dividends ($60,000 * 40% = $24,000). $800,000 + $40,000 - $24,000 = $816,000.

On January 1, 2014, TXU Europe Corporation Purchased 40% of the Outstanding