CMA Study Group

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  • 1.  Budget

    Posted 05-29-2020 05:30 AM

    On January 1, Boggs, Inc. paid $700,000 for 100,000 shares of Mattly Corporation representing 30% of Mattly's outstanding common stock. The following computation was made by Boggs.

    Purchase price: $700,000

    30% equity in book value of Mattly's net assets: $500,000 Excess cost over book value: $200,000


    The excess cost over book value was attributed to goodwill. Mattly reported net income for the year ended December 31 of $300,000. Mattly Corporation had paid cash dividends of $100,000 on July 1.

    If Boggs, Inc. exercised significant influence over Mattly Corporation and properly accounted for the long-term investment under the equity method, the amount of net investment revenue Boggs should report from its investment in Mattly would be:

     

    • $60,000
    • $30,000
    • $80,000
    • $90,000correct

    why don't choose 60000 because equity method the dividends is reduction of  investment income.

    ------------------------------
    Hend Abdel-Gafar
    Accountant
    Cairo
    Egypt
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  • 2.  RE: Budget

    Posted 05-29-2020 07:25 AM
    Hi Hend,

    The question is asking about net investment revenue (income statement) and not the Investment account (Balance Sheet).  The income is posted as revenue whereas the dividend is posted to cash.

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    Regards,
    Rebecca