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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Whopper Corporation owns a 40% interest in BigMac Corporation, which it purchased for $2.5 million. During fiscal year 2020, BigMac paid cash dividends of $50,000 and reported net income of $700,000. What is the value of Whopper’s investment in BigMac reported on its 2020 balance sheet?

  1. $3,150,000
  2. $2,760,000
  3. $2,500,00
  4. $2,450,000111

To determine

Concept introduction:

Equity Method:

The Equity method is applied for the accounting for investment in equity shares of a company where the investment has the significant influence over the company. Under this method the share of income earned by the company is recorded by the investor in the investment account and the investment account is decreased by any divided received.

To calculate:

The value of the investment reported on 2020 balance sheet.

Explanation

The value of the investment reported on 2020 balance sheet is calculated as follows:

Amount of investment $2,500,000

Add: Shares in Net Incom...

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