Accepted Answer

Hello, thanks for your question.

A) 25%;

S's income at 100%:...................100
less: S's total dividends paid......(80)
Net increase in S's equity 20

Net increase in P's Investment account (share in S's equity) divided into total increase in S's equity = 5/20 = 25%

B) 110;

P's share of S's income 27 (90 @ 30%) minus P's share of dividends 9 (30 @ 30%) = 18 (net increase in Investment in S account)

Thus, Investment in beginning of year equals 128 - 18 = 110
Or, to check, 110 + 27 - 9 = 128

C) 138;

Using the same logic as in B, use the net increase in Investment account:

S's income 40 - 20 (S's dividends) = 20
S's net increase in equity 20 @ 40% P's ownership percentage = 8
Therefore, Investment at end of year:
130 + 8 (the net change in investment account) = 138, or to check
130 + 16 (40 @ 40%) - 8 (20 @ 40%) = 138.

I hope the explanations help.
Also, when faced with similar problems, draw a T-chart and write in the info available. It should help visualize the problem and find the solution.



Edited by MaxPanchuck,CPA on 6/23/2009 at 9:43 PM

Expert:	MaxPanchuck,CPA
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Answered:	6/23/2009

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