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29 June, 13:57

On December 31, 2016, Osborn Company purchased 30% of Shea Company's common stock for $220,000. During 2017, Shea Company had a net income of $75,000 and paid cash dividends of $30,000. What would the balance of Osborn's Equity Investment (Shea) account be at the end of 2017 if they use the equity method? A. $242,500 B. $211,000 C. $220,000 D. $233,500

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  1. 29 June, 15:44
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    the balance of Osborn's Equity Investment (Shea) account be at the end of 2017 is $233,500

    Step-by-step explanation:

    Given data

    Acquistion price = $220000

    purchased = 30%

    net income = $75,000

    cash dividends = $30,000

    to find out

    the balance of Osborn's Equity Investment (Shea) account be at the end of 2017

    solution

    we will find out balance of investment i. e. given by formula

    balance of investment = Acquistion price + share of income - share of dividend ... 1

    so here

    share of income = 30% of net income

    share of income = 30% * 75,000 = $22500 ... 2

    and

    share of dividend = 30% of cash dividends

    share of dividend = 30% * 30000 = $9000 ... 3

    put equation 2 and 3 in equation 1 and we get

    balance of investment = Acquistion price + share of income - share of dividend

    balance of investment = 220000 + 22500 - 9000

    balance of investment = $233,500
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