REFERENCE: Ref.01_03
On January 1,2007,Deuce Inc.acquired 15% of Wiz Co.'s outstanding common stock for $62,400 and categorized the investment as an available-for-sale security.Wiz earned net income of $96,000 in 2007 and paid dividends of $36,000.On January 1,2008,Deuce bought an additional 10% of Wiz for $54,000.This second purchase gave Deuce the ability to significantly influence the decision making of Wiz.During 2008,Wiz earned $120,000 and paid $48,000 in dividends.As of December 31,2008,Wiz reported a net book value of $468,000.For both purchases,Deuce concluded that Wiz Co.'s book values approximated fair values and attributed any excess cost to goodwill.
-On Deuce's December 31,2008 balance sheet,what balance was reported for the Investment in Wiz Co.account?

Question

Quizplus · Accepted Answer

Deuce Inc. initially accounted for the investment as an available-for-sale security, but after acquiring an additional 10% and gaining significant influence, it switched to the equity method. The initial investment was $62,400, and the second was $54,000, totaling $116,400. Under the equity method, Deuce recognizes its share of Wiz's net income and dividends. For 2008, Deuce's share of Wiz's net income is 25% of $120,000 ($30,000), and its share of dividends is 25% of $48,000 ($12,000). The investment account increases by the share of net income and decreases by the share of dividends: $116,400 + $30,000 - $12,000 = $134,400. However, the initial investment needs to be adjusted for 2007's share of net income (15% of $96,000 = $14,400) and dividends (15% of $36,000 = $5,400), which were not recognized under the equity method initially. Adjusting for these gives $134,400 + $14,400 - $5,400 = $143,400.

REFERENCE: Ref.01_03 On January 1,2007,Deuce Inc.acquired 15% of Wiz Co.'s Outstanding Common