On January 3, 2011, Roberts Company purchased 30% of the 100,000 shares of common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or other cost allocation associated with the investment. Roberts has significant influence over Thomas. During 2011, Thomas reported income of $300,000 and paid dividends of $100,000. On January 4, 2012, Roberts sold 15,000 shares for $800,000. What is the balance in the investment account after the sale of the 15,000 shares?

Question

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Roberts initially purchased 30,000 shares (30% of 100,000) for $1,500,000. During 2011, Roberts' share of Thomas's income is 30% of $300,000 = $90,000, and its share of dividends is 30% of $100,000 = $30,000. The investment account increases by the income share and decreases by the dividends: $1,500,000 + $90,000 - $30,000 = $1,560,000. Roberts then sells 15,000 shares, which is half of its holding, so the investment account is reduced by half: $1,560,000 / 2 = $780,000.

On January 3, 2011, Roberts Company Purchased 30% of the 100,000