Rogers, Inc., acquires 15% of Procter Corporation on January 1, 2020, for $70,000. During 2020, Procter reported net income of $180,000 and paid total dividends of $40,000. At the year end of 2020, the market value of this 15% investment indicates the value of $68,000. On January 1, 2021, Rogers purchased an additional 30% of Procter for $310,000. During 2021, Procter reported net income of $300,000 and paid dividends of $40,000.a. Prepare the January 1, 2021 entry to adjust the Equity Investment account for the additional acquisition on that date; what is the investment balance?
b. Compute the balance in the Equity Investment account at December 31, 2021

It should be noted that the investment balance as at 31st December 2020, will also be the value of the investment balance for the start of the next year January 1st 2021.

Therefore,

Step 1: Calculate the Investment Balance as at 31st Dec, 2020

Acquisition Cost of 15% Investment (Procter Corporation Jan 1) $70,000

Subtract: The dividend received 31st Dec, 2020 ($40,000 x .15) ($6,000)

Investment Value as at December 31, 2020 $64,000

Step 2: Calculate the Investment Gain (Equity Investment)

The formula= Market value of Equity (year end) - Carrying Value (calculated in step 1)

= $68,000 - $64,000

= $4,000

Step 3: The journal entry to adjust the equity investment account

Date Particulars Debit Credit

Dec, 31, 2020 Equity Investment $4,000

Gain Unrealized on Equity Investment $4,000

being the journal record adjusting equity investment at the time of new acquisition

Part B: Balance of the Equity Investment Account Dec 31, 2021

The value of the Investment as at 31, Dec, 2020 $64,000

Add: The additional investment in Procter (Jan 1, 2021) $310,000

Add: Net Income Share for Rogers (45% x $300,000) $135,000

(45% because the initial 15% and the 30% additional)

Subtract: Dividend received (45% x $40,000) ($18,000)

Value of Equity Investment Dec 31, 2021 $491, 000