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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
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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