On January 1, 2011, Anderson Company purchased 40% of the voting common stock of Barney Company for $2,000,000, which approximated book value. During 2011, Barney paid dividends of $30,000 and reported a net loss of $70,000. What is the balance in the investment account on December 31, 2011?

Question

Quizplus · Accepted Answer

The balance in the investment account can be calculated using the equity method of accounting:

Initial investment cost = $2,000,000
Share of net loss = 40% x (-$70,000) = -$28,000
Dividends received = 40% x $30,000 = $12,000

Balance in investment account as of December 31, 2011 = Initial investment cost + Share of income/loss - Dividends received
= $2,000,000 - $28,000 - $12,000 = $1,960,000

Therefore, the correct answer is B.

On January 1, 2011, Anderson Company Purchased 40% of the Voting