On January 1, 2020, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a
Question:
On January 1, 2020, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when, on January 1, 2021, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2020 was $1,000,000. The book value of Cook on January 1, 2021, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.
Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years:
Net Income | Dividends | ||||||||
2020 | $ | 200,000 | $ | 50,000 | |||||
2021 | 225,000 | 50,000 | |||||||
2022 | 250,000 | 60,000 | |||||||
On April 1, 2022, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.
What was the balance in the investment account at December 31, 2021?
Advanced Accounting
ISBN: 9780132568968
11th Edition
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith