On January 1, 2018, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment.No allocation to goodwill or other specific account was necessary.Significant influence over Lennon was achieved by this acquisition.Lennon distributed a dividend of $2.50 per share during 2018 and reported net income of $670,000.What was the balance in the Investment in Lennon Co.account found in the financial records of Pacer as of December 31, 2018?

Question

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Pacer Company uses the equity method for its 45% investment in Lennon Co. The initial investment was $1,920,000. During 2018, Pacer's share of Lennon's net income is 45% of $670,000, which is $301,500. Pacer also receives dividends of $2.50 per share for 60,000 shares, totaling $150,000. The investment account is increased by the share of net income and decreased by the dividends received. Therefore, the balance is $1,920,000 + $301,500 - $150,000 = $2,071,500.

On January 1, 2018, Pacer Company Paid $1,920,000 for 60,000