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18 July, 23:42

On January 1, Puckett Company paid $2.01 million for 67,000 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 $2 per share during the year and reported net income of $595,000. 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. 19 July, 02:00
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    The $2,114,000 is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31.

    Explanation:

    Given that,

    Purchase amount in respect for 67,000 shares = $2,010,000

    Investment percentage = 40%

    Dividend = $2 per share

    Net income = $595,000

    Through these information which is shown above, we can calculate the balance in Investment in Harrison account. The steps for computation is shown below:

    Step 1: Purchase amount

    Step 2: Add Investment percentage income = Net income * Investment percentage

    Step 3 : Less Dividend (Number of Shares * Dividend per share)

    Now,

    Purchase amount = $2,010,000

    Add - $595,000 * 40% = $238,000

    Less - 67000 * $2 = $134,000

    So, the final amount is $2,114,000

    Thus, the $2,114,000 is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31.
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