Question
6] (Note: This Problem based on Exercise 2-10 ): Arcain Corporation acquired 25 percent of Tesla Corporations outstanding common stock on October 1, for $350,000.
6] (Note: This Problem based on Exercise 2-10): Arcain Corporation acquired 25 percent of Tesla Corporations outstanding common stock on October 1, for $350,000. Arcain uses the equity method of accounting.
A summary of Teslas adjusted trial balances on this date and at December 31 follows (Note: Assume that no goodwill or unamortized excess exist)
| Debits: | October 1st | December 31st |
| Current Assets | $125,000 | $250,000 |
| Plant Assets - Net | $775,000 | $750,000 |
| COGS and other expenses | $300,000 | $400,000 |
| Dividends (paid in July) | $100,000 | $100,000 |
|
| $1,300,000 | $1,500,000 |
| Credits: | October 1st | December 31st |
| Current Liabilities | $100,000 | $150,000 |
| Capital Stock | $500,000 | $500,000 |
| Retained Earnings | $250,000 | $250,000 |
| Sales | $450,000 | $600,000 |
|
| $1,300,000 | $1,500,000 |
REQUIRED
A] Determine Arcains investment income from Tesla Corporation for the year ended December 31.
B] Compute the correct balance of Arcains investment in Tesla account at December 31.
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Fundamentals of Corporate Finance
Authors: Berk, DeMarzo, Harford
2nd edition
132148234, 978-0132148238
