On January 1, 2021, Nana Company paid $100,000 for 6,200 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $50,000 for the year ended December 31, 2021. The fair value of the Papa stock on that date was $60 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2021?

Question

31-03-2020
Business

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On January 1, 2021, Nana Company paid $100,000 for 6,200 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $50,000 for the year ended December 31, 2021. The fair value of the Papa stock on that date was $60 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2021?

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andromache andromache · Answer 1 · 2020-04-04T17:44:53+02:00

Answer:

$372,000

Explanation:

The computation of the amount to be reported in the balance sheet is shown below:

= Number of shares of common stock × fair value of the Papa stock on that date per share

= 6,200 shares × $60

= $372,000

Since in the question it is given that the Nana company does not have significant influence over Papa Company which means that the net income, retained earning, dividend is not be considered.

Therefore, the investment should be reported at the fair value