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20 September, 12:08

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

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  1. 20 September, 15:40
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    The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be $100,000

    Explanation:

    The Purchase of 40% of Ferris Corporation for $100,000 is a Financial Asset. A financial asset is a contractual obligation to receive cash.

    Bharrat Corporation is expected to receive cash from the investment is has made in Ferris Corporation.

    The investment is measured at Cost of $100,000 in the Financial Statements. Declaration of dividend does not affect measurement of the Investment.
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