On January 1, 20X1, Como Company purchased 45% of the outstanding common shares of the Lite Company for $200,000. The net assets of Lite Company totaled $400,000. The inventory had a book value of $100,000 and a fair value of $120,000. Excess cost attributable to inventory is written off in 20X1. During 20X1, Lite Company earned $200,000 and declared a dividend of $40,000 for the year. The carrying value of the Lite investment at the end of 20X1 is:

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anthougo anthougo · Answer 1 · 2021-10-18T11:49:00+02:00

The carrying value of Como Company's investment in Lite Company at the end of December 31, 20X1 is $272,000.

Data and Calculations:

Investments in Lite Company = $200,000

Percentage of shareholding = 45%

Net assets of Lite Company on January 1, 20X1 = $400,000

Lite Company's earnings for 20X1 = $200,000

Dividend declared by Lite Company = $40,000

Share from Earnings in Lite = $72,000 ($200,000 + 45% of( $200,000 - $40,000)

Value of investment at the end of 20X1 = $272,000 ($200,000 + $72,000)

Thus, the investment in Lite Company at the end of 20X1 has a carrying value of $272,000.

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