On January 1, 2012, Cashew Corporation purchased 70,000 of the 210,000 shares of outstanding stock of Peanut Company for $550,000. Net income reported by Peanut Company for 2012 was $450,000. Dividends paid by Peanut Company during 2012 were $150,000. The long-term investment will appear on Cashew Corporation's December 31, 2012 balance sheet in the amount of:

Question

Quizplus · Accepted Answer

Cashew Corporation owns 1/3 of Peanut Company (70,000/210,000 shares), so it uses the equity method. The investment is initially recorded at $550,000. Cashew's share of Peanut's net income is 1/3 of $450,000, which is $150,000. Cashew's share of dividends is 1/3 of $150,000, which is $50,000. The investment account is increased by the share of net income and decreased by the share of dividends: $550,000 + $150,000 - $50,000 = $650,000.

On January 1, 2012, Cashew Corporation Purchased 70,000 of the 210,000