Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008, for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for $32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully adjusted equity method in accounting for its investment in Trevor and amortizes all differentials over 5 years against the related investment income. All differentials are assigned to patents in the consolidated financial statements.

-Based on the preceding information,what was the balance in Perfect's Investment in Trevor Company Stock account on December 31,2009?

Question

Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008, for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for $32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully adjusted equity method in accounting for its investment in Trevor and amortizes all differentials over 5 years against the related investment income. All differentials are assigned to patents in the consolidated financial statements.
 
-Based on the preceding information,what was the balance in Perfect's Investment in Trevor Company Stock account on December 31,2009?

Quizplus · Accepted Answer

To determine the balance in Perfect's Investment in Trevor Company Stock account on December 31,2009, we need to use the fully adjusted equity method.

The initial investment of $140,000 is adjusted for the amortization of the differential over 5 years, which would be $8,000 per year ($40,000/5 years). Therefore, the investment balance at December 31, 2009 would be:

$140,000 (initial investment) + ($8,000 × 2 years) - $20,000 (dividends received) = $157,500

Therefore, the correct answer is B) $157,500.

Perfect Corporation Acquired 70 Percent of Trevor Company's Shares on December