CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

On January 2, 2011, Garner, Inc. bought 30% of the outstanding common stock of Moody, Inc. for $60 million cash. At the date of acquisition of the stock, Moody's net assets had a book value and fair value of $180 million. Moody's net income for the year ended December 31, 2011, was $30 million. During 2011, Moody declared and paid cash dividends of $6 million. On December 31, 2011, Garner's investment account should have a balance of:
A. $60.0 million.
B. $67.2 million.
C. $69.0 million.
Explanation: $60 million + $9 million (30% x $30 million) - $1.8 million (30% x $6 million).

User Contributed Comments 3

User Comment
danlan2 Should it be 60+30%x30=69 ? I do not understand why we should count the dividend.
volkovv dividends are removed from the investment account under equity method
pjdeschenes Under the equity method, you must track an investment account (also called a capital account). The beginning balance is how much you pay. Each period, you increase by your portion of the income from the investment and decrease by your portion of the dividend (distributed cash).
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