On January 1, 20X8, William Company acquired 30 percent of eGate Company\'s comm
ID: 2461779 • Letter: O
Question
On January 1, 20X8, William Company acquired 30 percent of eGate Company's common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. William uses the equity method to account for this investment. Based on the preceding information, what amount will be reported by William Company as balance in investment in eGate Company on December 31, 20X8, if it used the equity method of accounting?
Can you provide the answer and how you got it? I am coming up with a number (123,400), that is different than these choices
A. $100,000
B. $123,400
C. $120,400
D. $142,000
Explanation / Answer
As per the equity method the investment will be
Investment in the beginning 100000
now, 150000*30% = 45000
Less: Dividend
72000*30% = -21600 23400
Investment
100000+23400 = $ 123400
The correct option is B. $ 123400