On January 1,2008,William Company acquired 30 percent of eGate Company's common stock,at underlying book value of $100,000.eGate has 100,000 shares of $2 par value,5 percent cumulative preferred stock outstanding.No dividends are in arrears.eGate reported net income of $150,000 for 2008 and paid total dividends of $72,000.William uses the equity method to account for this investment.
-Based on the preceding information,what amount would be reported by William Company as the balance in its investment account on December 31,2008?

Question

Quizplus · Accepted Answer

William Company's investment in eGate Company is accounted for using the equity method. Under the equity method, William Company records its share of eGate Company's net income and dividends.For 2008, William Company's share of eGate Company's net income is $150,000 * 30% = $45,000. William Company's share of eGate Company's dividends is $72,000 * 30% = $21,600.The balance in William Company's investment account on December 31, 2008 is $100,000 (the original investment) + $45,000 (William Company's share of eGate Company's net income) - $21,600 (William Company's share of eGate Company's dividends) = $123,400.

On January 1,2008,William Company Acquired 30 Percent of EGate Company's