Question

Assume that Hamilton Corp acquired 15% of the common stock of Logan Corp. on January 1 for \$300,000 . During the year Logan Corp. reported net income of $160,000 and paid total dividends of $60,000. The balance in the investment account on December 31 will be

a 300,000

b 325,000

c 400,000

d 340,000

Answer 1

Correct answer------------(a) $300,000

.

The Hamilton corp only has 15% of shares which do not constitute sufficient influence over Logan corp hence cost method for investment will be used.

The dividend received by Hamilton will be directly credited to its income statement as dividend income and Investment account in Logan will remain at $300000 which is the cost of purchase of shares.

Equity method would have been used if the holding was more than 20%.