Parent Company purchased 100 percent of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2.
-Based on the preceding information and assuming Parent uses the cost method to account for its investment in Son,what is the balance in Parent's Investment in Son account on December 31,20X2,prior to consolidation?
A) $416,000
B) $420,000
C) $424,000
D) $498,000

Question

Quizplus · Accepted Answer

Under the cost method, the investment remains at its original cost unless there is a permanent decline in value or additional investment. Therefore, the balance remains at $420,000.

Parent Company Purchased 100 Percent of Son Inc