Question

Moorland Industries owns 20,000 of the 50,000 outstanding shares of Paragon Resources’ common stock. Paragon had net income of $1 million and paid cash dividends of $800,000 in 2020.
If Moorland had a beginning balance of $625,000 in their investment account in 2020, their ending balance on December 31, 2020 should be ______.

Answer 1

Answer:

$945,000

Explanation:

20,000 of 50,000 outstanding shares in paragon means that Moorland Industries is entitled to 40% or 20/50 of the declared dividend of Paragon.

Here, 40% of $800,000 is $320,000.

If the balance in the investment account at the beginning of the period was $625,000, the ending balance shall be $625,000 + $320,000.