On January 1, Aivah Company purchased 2,000 common shares (25%) of Maywood Corporation as a long-term investment for $235,000. Later in the year, Maywood paid $23,000 in total cash dividends on December 15 and reported net income of $74,000 for the year ended December 31. Determine the amount reported as an equity method investment on Aivah's December 31 balance sheet. Balance

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, Aivah Company purchased 2,000 common shares (25%) of Maywood Corporation as a long-term investment for $235,000. Later in the year, Maywood paid $23,000 in total cash dividends on December 15 and reported net income of $74,000 for the year ended December 31. Determine the amount reported as an equity method investment on Aivah’s December 31 balance sheet.

The diagram is a T-account table used for tracking the balance of the investment:

- The T-account is divided by horizontal lines to separate different transactions and a balance line.
- Each transaction is aligned with an arrow pointing toward the balance line, indicating how the balance is updated.

To calculate the balance reported for the equity method investment:

1. **Initial Investment**: $235,000.
2. **Share of Net Income**: Aivah owns 25% of Maywood, so it shares 25% of Maywood’s net income:
   - 25% of $74,000 = $18,500.
3. **Dividends Received**: Aivah’s share of the dividends = 25% of $23,000 = $5,750.

Calculate the new balance:
- Initial investment: $235,000
- Add: Share of net income: +$18,500
- Less: Dividends received: -$5,750

**Balance on December 31**: $247,750.

This balance reflects the value of the investment adjusted by Aivah’s share of Maywood’s net income and dividends for the year.
Transcribed Image Text:On January 1, Aivah Company purchased 2,000 common shares (25%) of Maywood Corporation as a long-term investment for $235,000. Later in the year, Maywood paid $23,000 in total cash dividends on December 15 and reported net income of $74,000 for the year ended December 31. Determine the amount reported as an equity method investment on Aivah’s December 31 balance sheet. The diagram is a T-account table used for tracking the balance of the investment: - The T-account is divided by horizontal lines to separate different transactions and a balance line. - Each transaction is aligned with an arrow pointing toward the balance line, indicating how the balance is updated. To calculate the balance reported for the equity method investment: 1. **Initial Investment**: $235,000. 2. **Share of Net Income**: Aivah owns 25% of Maywood, so it shares 25% of Maywood’s net income: - 25% of $74,000 = $18,500. 3. **Dividends Received**: Aivah’s share of the dividends = 25% of $23,000 = $5,750. Calculate the new balance: - Initial investment: $235,000 - Add: Share of net income: +$18,500 - Less: Dividends received: -$5,750 **Balance on December 31**: $247,750. This balance reflects the value of the investment adjusted by Aivah’s share of Maywood’s net income and dividends for the year.
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