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20 September, 08:58

Pare, Inc., purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, 20X1, for $50,000. On December 31, 20X1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during 20X1. Tot reported earnings of $300,000 for 20X1. What amount should Pare report in its December 31, 20X1, balance sheet as investment in Tot? A. $170,000

B. $200,000

C. $230,000

D. $290,000

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  1. 20 September, 12:53
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    C) $230,000

    Explanation:

    Since Pare has significant influence over Tot (it owns 30% of its stock), it must record the transactions using the equity method. Pare purchased the extra 20% of stocks on December 31, so it will only report dividends for the original 10%.

    total ownership:

    100,000 stocks x 10% = 10,000 stocks at $50,000

    20,000 stocks at $150,000

    total 30,000 stocks (30%) at $200,000

    earning's share (using equity method):

    $300,000 x 10% = $30,000

    total investment account = $200,000 + $30,000 = $230,000
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