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, 2015, balance sheet at:

Question

Quizplus · Accepted Answer

The initial investment cost of $800,000 will remain the same. However, we need to adjust for our share of the investee's net income and dividends. 
Our share of net income for 2014 is 40% of $100,000 = $40,000 
Our share of dividends for 2014 is 40% of $60,000 = $24,000 
Our share of net income for 2015 is 40% of $125,000 = $50,000 
Our share of dividends for 2015 is 40% of $75,000 = $30,000 
Total adjustments = ($40,000 - $24,000) + ($50,000 - $30,000) = $36,000 
Final investment balance as of December 31, 2015 = $800,000 + $36,000 = $836,000.

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