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On January 1, Belleville Company paid $2,295,000 to acquire 90,000 shares of O'Fallon’s voting common stock, which represents a 30 percent investment. No allocations to goodwill or other specific accounts were made. Significant influence over O'Fallon is achieved by this acquisition, and so Belleville applies the equity method. O'Fallon declared a $1 per share dividend during the year and reported net income of $750,000. What is the balance in the Investment in O'Fallon account found in Belleville’s financial records as of December 31?

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Tundexi

In order to calculate the balance in the Investment in O'Fallon account found in Belleville’s financial records, we have to determine

  • Acquisition cost
  • Share of net income
  • Dividends received

The acquisition cost will be added to the share of net income and the dividend received will be subtracted

Particulars                                                                  Amount

Acquisition cost                                                       2,295,000

Add: Share of net income                                       $225,000 (750,000*30%)

Less: Dividends received                                        $90,000 ($90,000*1)

Balance in the Investment in O'Fallon account  $2,430,000

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