On January 1,2008,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 made.Significant influence over Lennon was achieved by this acquisition.Lennon distributed a dividend of $2.50 per share during 2008 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 31,2008?

Question

Quizplus · Accepted Answer

Pacer's investment is accounted for using the equity method. Initial investment is $1,920,000. Pacer's share of Lennon's net income is 45% of $670,000, which is $301,500. Dividends received are 60,000 shares * $2.50 = $150,000. The balance is $1,920,000 + $301,500 - $150,000 = $2,071,500.

On January 1,2008,Pacer Company Paid $1,920,000 for 60,000 Shares of Lennon