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Assume that, on January 1, 2021, Matsui Co. paid $1,500,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and fair value of Yankee's identifiable net assets were both $400,000 at January 1, 2021. The following information pertains to Yankee during 2021: Net income $ 200,000 Dividends declared and paid $ 60,000 Market price of common stock on 12/31/2021 $ 27 /share What amount would Matsui report in its year-end 2021 balance sheet for its investment in Yankee

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Answer: $1,542,000‬

Explanation:

Matsui paid for 60,000 out of 200,000 shares. They therefore own;

= 60,000/200,000

= 30% of Yankee shares.

Yankee had Net Income of 200,000.

Matsui will recognize their 30% of that;

= 200,000 * 30%

= $60,000

Yankee however paid dividends of $60,000 so that will reduce Matsui's holding;

= 60,000 * 30%

= $18,000

The balance for the investment at year end is;

= Opening balance + Net Income - Dividends

= 1,500,000 + 60,000 - 18,000

= $1,542,000‬

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