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21 June, 13:39

On January 1, Puckett Company paid $2.97 million for 99,000 shares of Harrison's voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $3 per share during the year and reported net income of $580,000. What is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31?

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  1. 21 June, 15:15
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    Balance of Harrison's Investment in Puckett's Financial Records

    = $2,905,000

    Explanation:

    To calculate the balance of Harrison's account in Puckett's financial records the following steps are applied.

    Step 1: Calculate the percentage of reported Income that accruees to Harrsion in Puckett

    =Reported Net Profit x Percent Investement of Harrison in Puckett

    = $580,000 x 0.40 = $232,000

    Step 2: Calculate the Dividend Accrued to Harrison's Common Stok basd on the $3 dividend per share declared

    = Total Number of Shares for Harrison x $3

    =99,000 Shares x $3 = $297,000

    Final Step: Calcuate the balance of Harrision's Investment in Puckett

    = Amount paid for 99,000 stock + Percentage of Reported Income Accrued to Harrison - Harrison's portion of Dividend declared

    = $2,970,000 + $232,000 - $297,000

    = $2,905,000
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