Copyright

Clayton Inc. purchased 30% of the outstanding common stock of Austin Industries on January 1,...

Question:

Clayton Inc. purchased 30% of the outstanding common stock of Austin Industries on January 1, 2014, for $180,000. Austin reported net income of $70,000 for 2014 and declared and paid cash dividends on common stock of $30,000.

The amount of Clayton's investment in Austin on December 31, 2014, should be _____.

Investment using equity method

Investment using equity method treats share in net income as an addition to the balance of the investment and treats the dividends as reduction to the balance.

Answer and Explanation:

The amount of Clayton's investment in Austin on December 31, 2014, should be $171,000

Investment Cost 180,000
Net Income 21,000
Dividends -30,000
Ending Balance 171,000

Learn more about this topic:

Loading...
Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
4.7K

Related to this Question

Explore our homework questions and answers library