REFERENCE: Ref.01_04
On January 1,2008,Dawson,Incorporated,paid $100,000 for a 30% interest in Sacco Corporation.This investee had assets with a book value of $550,000 and liabilities of $300,000.A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life.Any goodwill associated with this acquisition is considered to have an indefinite life.During 2008,Sacco reported income of $50,000 and paid dividends of $20,000 while in 2009 it reported income of $75,000 and dividends of $30,000.Assume Dawson has the ability to significantly influence the operations of Sacco.
-The balance in the investment in Sacco account at December 31,2009,is

Question

Quizplus · Accepted Answer

The initial investment is $100,000. Adjust for the investor's share of Sacco's income and dividends: 2008 income: $50,000 x 30% = $15,000; 2008 dividends: $20,000 x 30% = $6,000; 2009 income: $75,000 x 30% = $22,500; 2009 dividends: $30,000 x 30% = $9,000. The investment account is adjusted by adding the share of income and subtracting the share of dividends: $100,000 + $15,000 - $6,000 + $22,500 - $9,000 = $119,500.

REFERENCE: Ref.01_04 On January 1,2008,Dawson,Incorporated,paid $100,000 for a 30% Interest in Sacco