Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2010, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2010 and $50,000 in 2011 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2010 and $47,000 in 2011 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2011, if the equity method has been applied?
A) $286,000.
B) $295,000.
C) $276,000.
D) $344,000.
E) $324,000.

Question

Quizplus · Accepted Answer

The Investment in Merriam Co. balance on Jansen's books as of December 31, 2011, if the equity method has been applied, is $286,000. This is calculated as follows:Beginning balance: $257,000Add: Share of Merriam's net income (2010: $40,000 x 100%, 2011: $47,000 x 100%): $87,000Less: Share of Merriam's dividends (2010: $10,000 x 100%, 2011: $10,000 x 100%): $20,000Less: Amortization of excess fair value over book value: $38,000Ending balance: $286,000