Studdy AI Logo
Math  /  Algebra

Question2. Assume the following transactions occured during 2023:
Jan I, Purple purchases 30%30 \% of Yellow's common stock for $150,000\$ 150,000. June 30, Yellow reported net income of $50,000\$ 50,000. June 30, Yellow declared \20,000Dividends.July1,Purplepurchasesadditional20,000 Dividends. July 1, Purple purchases additional 10 \%ofYellow′scommonstockfor of Yellow's common stock for \50,000 50,000. Dec 31, Yellow reported net income of $65,000\$ 65,000. Dec 31, Yellow declared $20,000\$ 20,000 dividends. The Investment in Yellow account balance reported by Purple at December 31, 2023 would be A. $250,000\$ 250,000 B. $275,000\$ 275,000 C. $227,000\$ 227,000 D. $222,500\$ 222,500

Studdy Solution

STEP 1

1. Purple initially purchases 30% of Yellow's common stock for 150,000.<br/>2.Yellowreportsanetincomeof150,000.<br />2. Yellow reports a net income of 50,000 on June 30.
3. Yellow declares dividends of 20,000onJune30.<br/>4.Purplepurchasesanadditional1020,000 on June 30.<br />4. Purple purchases an additional 10% of Yellow's common stock for 50,000 on July 1.
5. Yellow reports a net income of 65,000onDecember31.<br/>6.Yellowdeclaresdividendsof65,000 on December 31.<br />6. Yellow declares dividends of 20,000 on December 31.
7. We are calculating the Investment in Yellow account balance for Purple as of December 31, 2023.

STEP 2

1. Calculate the initial investment and its impact.
2. Adjust for income and dividends up to June 30.
3. Account for the additional purchase on July 1.
4. Adjust for income and dividends from July 1 to December 31.
5. Calculate the final balance in the Investment in Yellow account.

STEP 3

Calculate the initial investment and its impact.
The initial investment by Purple is 30% of Yellow's stock for $150,000.

STEP 4

Adjust for income and dividends up to June 30.
Purple's share of Yellow's net income up to June 30 is 30% of $50,000, which is:
0.30×50,000=15,000 0.30 \times 50,000 = 15,000
Purple's share of Yellow's dividends up to June 30 is 30% of $20,000, which is:
0.30×20,000=6,000 0.30 \times 20,000 = 6,000
The investment account is increased by the net income share and decreased by the dividends share:
150,000+15,000−6,000=159,000 150,000 + 15,000 - 6,000 = 159,000

STEP 5

Account for the additional purchase on July 1.
Purple purchases an additional 10% of Yellow's stock for $50,000, bringing the total investment to:
159,000+50,000=209,000 159,000 + 50,000 = 209,000

STEP 6

Adjust for income and dividends from July 1 to December 31.
Purple's share of Yellow's net income from July 1 to December 31 is 40% of $65,000, which is:
0.40×65,000=26,000 0.40 \times 65,000 = 26,000
Purple's share of Yellow's dividends from July 1 to December 31 is 40% of $20,000, which is:
0.40×20,000=8,000 0.40 \times 20,000 = 8,000
The investment account is increased by the net income share and decreased by the dividends share:
209,000+26,000−8,000=227,000 209,000 + 26,000 - 8,000 = 227,000

STEP 7

Calculate the final balance in the Investment in Yellow account.
The final balance in the Investment in Yellow account reported by Purple at December 31, 2023, is:
227,000 \boxed{227,000}

Was this helpful?

Studdy solves anything!

banner

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

ParentsInfluencer programContactPolicyTerms
TwitterInstagramFacebookTikTokDiscord