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1 April, 05:36

Frankfort Corporation purchases an investment in Bradley, Inc. at a purchase price of $9.8 million cash, representing 40% (at book value) of Bradley. During the year, Bradley reports net income of $1,680,000 and pays $413,000 of cash dividends. At the end of the year, the market value of Frankfort's investment is $11.9 million. What amount of equity earnings would be reported by Frankfort Corporation? A. $165,000 B. $672,000 C. $507,000 D. $1,267,000 E. None of the above

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  1. 1 April, 06:18
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    The correct answer is B

    Explanation:

    The amount of equity earnings will be computed as:

    Amount of earnings = Frankfort share in net Income of Bradley * Bradley Net Income

    where

    Frankfort share is 40%

    Net Income of Bradley amounts to $1,680,000

    Putting the values above in the amount of earnings:

    = 40% share * $1,680,000

    = $672,000

    Therefore, the option B is correct.
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