Pare, Inc., purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, 20X1, for $50,000. On December 31, 20X1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during 20X1. Tot reported earnings of $300,000 for 20X1. What amount should Pare report in its December 31, 20X1, balance sheet as investment in Tot?
A.
$170,000
Incorrect B.
$200,000
C.
$230,000
D.
$290,000
Since Pare purchased the additional shares on December 31, Pare records only 10% of Tot's net income (for the 10% of the shares held during the year). However, because Pare owned a 30% share on December 31, the equity method is used, and the investment in Tot is adjusted for Pare's share of net income:
Pare's investment in Tot Co. on December 31, 20X1:
Acquisition cost of first 10,000 shares $ 50,000
Acquisition cost of additional 20,000 shares 150,000
Pare's share of Tot Co.'s 20X1 earnings
under equity method (10% x $300,000) 30,000
Total $230,000
My question is how do we determine that Pare's total share is now 30 percent?????
FAR: 63, 55, 62
REG: 65, 77*
AUD: Fail, 64, 71
BEC: 72, 74, 81
*expired
.