Question

On 1/1/2008 Aero Company purchased 10% of Bert Company’s common stock for $80,000, which was equal to 10% of the book value of Bert on 1/1/2008. Aero appropriately used the cost method of accounting for its investment.  Aero purchased an additional 25% of Bert's common stock on 1/1/2010 for $190,000 which was also equal to its share of book value at that date.  Aero can now exercise significant influence over the operating and financial policies of Bert.  The total net income and dividends of Bert are as follows:

Year	Net Income	Dividends
2008	$50,000	$20,000
2009	$75,000	$30,000
2010	$100,000	$50,000

1) Based on the information given above, the amount of income that Aero would report on its income statement related to its investment in Bert for 2009 is:

2) Based on the information given above, what is the carrying value of the investment in Bert on Aero's books after any adjustments made on 1/1/2010 to account for its additional purchase of Bert shares?

Answer 1

1 Band on the Information given the Amount of Income that Ano would reput on its encome Statement related to its Investment is best for 2009 Aero company holding Just loro total do It doesn't have significant Intrane on 1101) 2009 Equity, So oven the Investee So a portion of dividend Amont only is to be recognised on its Income statement. .: Amont of dividend declared by the Best company for the 2009 is $30,000. share of Amont recognised by Aero company. in It's Encome statement [$30,000x 107] $3000

2) carrying Amount of Inventant in Bert on Aeno's books. additional 25% of Bent's common stock lost - $1,90,000 [1/1/2010] 25% cost of lor of Bent's common stock $ 80,000 Purchand on a/01/2008 [105 ] portion of Income Relog for Intestant made by Ano = $35,000 (35%. X 1,00,000] D. Out of dividend paid by bertioy = -($ 17,500) [351. x 50,000] $2,87,500 Carry value of Investment Note at end of year-2010 4 the Entity hold more than 201. of the Equity it is presund that Entity has significant Influence over Invester the Investor has to apply Equity method for Recognition of Income & Dividend. Dividend. [anitial cost of Asst xxxx (t) share of probity o share of divided distibuted (xxx)