Photo Finish Corporation bought a 40% interest in Click-It Corporation's $1 par value voting common stock on March 31,2019.On that date,Photo Finish paid $20 million for the 2 million shares at a $10 market price per share.On December 31,2019,Click-It paid a $1 million cash dividend declared earlier in 2019,and reported net income for the year ended 2019 of $10 million.On December 31,2019,Click-It's stock was trading at $11.50 per share. At what amount will the Click-It investment be reported on Photo Finish's December 31,2019 balance sheet?
A)$20,000,000.
B)$23,000,000.
C)$23,600,000.
D)$24,000,000.

Question

Quizplus · Accepted Answer

First, we need to calculate the fair value of Photo Finish's investment in Click-It as of December 31, 2019.
Fair value of investment = (2,000,000 shares x $11.50 market price per share) = $23,000,000

Next, we need to calculate Photo Finish's share of Click-It's net income for the year ended December 31, 2019.
Share of net income = 40% x $10,000,000 = $4,000,000

Finally, we need to subtract the cash dividend received from Click-It during the year.
Cash dividend received = 40% x $1,000,000 = $400,000

Therefore, the carrying value of Photo Finish's investment in Click-It as of December 31, 2019 is:

Carrying value = $20,000,000 (initial investment) + $4,000,000 (share of net income) - $400,000 (cash dividend) = $23,600,000

So, the correct answer is C, $23,600,000.

Photo Finish Corporation Bought a 40% Interest in Click-It Corporation's