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 investment account balance is calculated as follows:

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

Therefore, Investment account balance on December 31, 2011 = $2,000,000 - $28,000 + $12,000 = $1,984,000

However, since the question asks for the balance in the investment account on December 31, 2011, we need to add the share of net income for the year. But since Barney Company reported a net loss, there is no net income to be added. Therefore, the correct answer is $1,960,000 (Option B).

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