Question

On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend.Barger elects to use the equity method of accounting. What is the balance in the Investment in Booker account in the records of Barger Company at December 31, of the current year?

Answer 1

Answer:

$1,247,500

Explanation:

The computation of the balance in the Investment in Booker account is shown below:

= The Purchasing cost of common stock + ownership amount - cash dividend paid

where,

Purchasing cost of the common stock is $1,200,000

Ownership amount = Net income × ownership percentage

                                = $700,000 × 0.25

                                = $175,000

And, the dividend amount = Number of shares × dividend per share

                                            = 150,000 shares × $0.85 per share

                                            = 127,500

Now put these values to the above formula

So, the answer would be equal to

= $1,200,000 +  $175,000 - $127,500

= $1,247,500