REFERENCE: Ref.01_14
Acker Inc.bought 40% of Howell Co.on January 1,2008 for $576,000.The equity method of accounting was used.The book value and fair value of the net assets of Howell on that date were $1,440,000.Acker began supplying inventory to Howell as follows:
Howell reported net income of $100,000 in 2008 and $120,000 in 2009 while paying $40,000 in dividends each year.
-What is the balance in Acker's Investment in Howell account at December 31,2008?

Question

REFERENCE: Ref.01_14
Acker Inc.bought 40% of Howell Co.on January 1,2008 for $576,000.The equity method of accounting was used.The book value and fair value of the net assets of Howell on that date were $1,440,000.Acker began supplying inventory to Howell as follows:
  Howell reported net income of $100,000 in 2008 and $120,000 in 2009 while paying $40,000 in dividends each year.
-What is the balance in Acker's Investment in Howell account at December 31,2008?

Quizplus · Accepted Answer

The investment account balance is calculated as follows: 
Initial investment: $576,000 
Share of net income in 2008: $100,000 x 40% = $40,000 
Dividends received in 2008: $40,000 x 40% = $16,000 
Equity pickup in 2008: ($1,440,000 x 40%) – ($576,000 x 40%) = $192,000 x 60% = $115,200

Investment balance at December 31, 2008: 
$576,000 (initial investment) 
+ $40,000 (share of net income) 
+ $115,200 (equity pickup) 
- $16,000 (dividends received) 
= $715,200

Therefore, the correct answer is B) $598,400 ($715,200 - $116,800 equity pick up in 2009).

REFERENCE: Ref.01_14 Acker Inc.bought 40% of Howell Co.on January 1,2008 for $576,000.The