Question

On July 1, 2013, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactly equal to 40% of the fair value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,000,000 for 2013, and paid $150,000 quarterly dividends to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of:

Answer 1

The balance in Tremen's 'Investment in Delany Company' account after all closing entries would be $3,340,000.

Step-by-step explanation:

The balance in Tremen's 'Investment in Delany Company' account can be calculated by adding the initial investment, the share of Delany's net income, and subtracting the share of dividends received.

Initial investment: $3,000,000

Share of Delany's net income: $1,000,000 x 40% = $400,000

Share of dividends received: $150,000 x 40% = $60,000 (4 quarters)

Therefore, the balance in Tremen's 'Investment in Delany Company' account would be $3,000,000 + $400,000 - $60,000 = $3,340,000.