Question

On January 1 of the current year, Benson Corporation purchased 25% of the common stock outstanding of Landon Corporation for $600,000. During the year, Landon Corporation reported net income of $200,000 and paid cash dividends of $80,000. The balance of the Stock Investments on the books of Benson Corporation at the end of the year is $600,000. $650,000. $720,000. $630,000.

Answer 1

Answer: $630,000

Explanation:

The balance of the Stock Investments on the books of Benson Corporation at the end of the year is calculated as follows,

Firstly, we know that Benson Corporation acquired 25% of Landon Stock for $600,000.

Landon reported a net income of $200,000.

We have to add the portion of this income that Landon declared that Benson has claim to, to the balance of stock investments.

That would be 25% of $200,000

= 0.25 * 200,000

= $50,000

Landon then declared dividends of $80,000.

We have to subtract the portion of this income that Landon declared that Benson has claim to, to the balance of stock investments because it represents a loss in the capital.

That would be 25% of $80,000

= 0.25 * 80,000

= $20,000

Bringing the figures together would be,

= 600,000 + 50,000 - 20,000

= $630,000

The balance of the Stock Investments on the books of Benson Corporation at the end of the year is $630,000.

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