Question
Exeter Company acquires 35% of the voting stock of Fenton Corporation for $7,000,000 on January 1, 2020. At the time, the book value of Fenton
Exeter Company acquires 35% of the voting stock of Fenton Corporation for $7,000,000 on January 1, 2020. At the time, the book value of Fenton was $20,000,000. During 2020, Fenton reported net income of $3,000,000 and declared and paid dividends of $500,000. Both companies have December 31 year-ends, and the fair value of the investment at year-end was $9,000,000. Exeter uses the equity method to report its investment in Fenton stock. Assume the same information as in question 35. What is the investment balance on December 31, 2020, reported on Exeter's balance sheet?
Select one:
A. $7,700,000
B. $7,525,000
C. $7,000,000
D. $7,550,000
Exeter Company acquires 35% of the voting stock of Fenton Corporation for $7,000,000 on January 1, 2020. At the time, the book value of Fenton was $20,000,000. During 2020, Fenton reported net income of $3,000,000 and declared and paid dividends of $500,000. Both companies have December 31 year-ends, and the fair value of the investment at year-end was $9,000,000. Exeter uses the equity method to report its investment in Fenton stock. Now assume Exeter's 2020 ending inventory contains $125,000 in merchandise purchased from Fenton, at a markup of 25% on cost. What is the impact on 2020 equity in net income?
Select one:
A. $35,000 lower
B. None
C. $8,750 lower
D. $25,000 lower
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