Davis Company purchased 30% of the outstanding shares of Ocean Corporation on January 1 at a cost of $580,000. Ocean Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year. At the end of the year, Ocean shares had a current market value of $590,000. After all necessary adjusting entries are made for the year, the balance in Davis Company's Long-Term Investment account will be:

Question

Quizplus · Accepted Answer

Davis Company will adjust the investment account using the equity method: Initial investment ($580,000) + 30% of Ocean's net income ($95,000 * 30% = $28,500) - 30% of dividends received ($25,000 * 30% = $7,500) = $601,000.

Davis Company Purchased 30% of the Outstanding Shares of Ocean