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5 June, 13:35

On January 1, 2011, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2011 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011?

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  1. 5 June, 14:02
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    The balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011 is $2,071,500

    Explanation:

    The computation of the investment balance is shown below:

    = Investment amount + net income sharing percentage - dividend paid

    where,

    Investment amount = $1,920,000

    Net income sharing percentage = Net income * given percentage

    = $670,000 * 45%

    = $301,500

    And, the dividend paid equal to

    = Number of shares * dividend per share

    = 60,000 shares * $2.50

    = $150,000

    Now put these values to the above formula

    So, the value would equal to

    = $1,920,000 + $301,500 - $150,000

    = $2,071,500
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