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24 November, 13:55

Champaign Corporation purchases 45% of the common stock of Rockville, Inc. at a purchase price of $21.6 million cash. During the year, Rockville reports net income of $2,960,000 and pays $544,000 of cash dividends. At the end of the year, the market value of Champaign's investment is $23.7 million. What is the year-end balance of the equity investment in Rockville? Select one: A. $22,687,200 B. $25,010,000 C. $24,332,500 D. $21,600,000 E. None of the above

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  1. 24 November, 13:56
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    The correct option is A,$ 22,687,200

    Explanation:

    The year end balance of the equity investment of Champaign Corporation at year end is the initial price paid for the investment plus share of net income in the year less Champaign Corporation's share of cash dividends paid in the year as shown below:

    Initial cost of investment $21,600,000

    share of net income ($2,960,000*45%) $ 1,332,000

    Less:share of dividends ($544,000*45%) ($244,800)

    Year end balance of equity investment $ 22,687,200

    The correct option is A.

    It is important to note that dividends were deducted because it is more ike a cash out from the investment
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Home » Business » Champaign Corporation purchases 45% of the common stock of Rockville, Inc. at a purchase price of $21.6 million cash. During the year, Rockville reports net income of $2,960,000 and pays $544,000 of cash dividends.
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