The Master Company acquired a 40% interest in the Dickerson Company on January 2, 2014, for $1,000,000. During 2014, Dickerson Company paid $100,000 in dividends and reported net income of $270,000. At the end of 2014, the balance in Investment in Dickerson Company should be

Question

Quizplus · Accepted Answer

To determine the balance in Investment in Dickerson Company at the end of 2014, we need to adjust the investment account for the share of net income and dividends received in 2014.

40% of Dickerson Company's net income in 2014 is: 0.4 x $270,000 = $108,000
Thus, Master Company's investment account is increased by $108,000.

In addition, Master Company received dividends of $100,000 from Dickerson Company in 2014, so the investment account is decreased by $100,000.

Therefore, the balance in Investment in Dickerson Company at the end of 2014 is: 
$1,000,000 + $108,000 - $100,000 = $1,068,000.

The correct answer is B.

The Master Company Acquired a 40% Interest in the Dickerson