On January 4, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During the next years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000. What is the book value of Barber's investment in Convell at the end of this first year?
A)$69,650.
B)$137,250.
C)$68,650.
D)$70,650.
E)$131,500.

Question

Quizplus · Accepted Answer

Barber's initial investment is $60,500 ($59,500 + $1,000). With significant influence, the equity method is used. Barber's share of Convell's net income is $14,400 (5,000/25,000 * $72,000). Dividends received are $4,250 (5,000 * $0.85). The book value is $60,500 + $14,400 - $4,250 = $70,650.

On January 4, Barber Company Purchased 5,000 Shares of Convell