Reference no: EM132997759

Question - On January 1,2020, X Company purchased 25% (25,000 shares) for $250,000 of the outstanding common shares of Y Company but was unable to obtain significant influence over Y as 8 members of the Board of Directors were from companies other than the X Company. The shares of X were trading at $10.00/share at this time. On September 1st. 2020, X purchased another 35%(35,000 shares) for $385,000 of the Y Company and thereby obtained voting control over the Y Company. Y appointed 7 members to the Board of Directors . The shares of Y were trading at $12.00//share at this time and $14/share at the year end. Y reported Net Income of $120,000 for the year and paid dividends of $60,000 for the year. The income and dividends were earned and paid evenly over the year.

i. If X used the cost method to record the investment what is the balance in the investment account at December 31st. 2020?

i. $599.000

ii. $635,000

iii. $527,000

iv. $840,000

ii. If X switched to recording the investment in Y as of September 1st. 2020, what is the balance in the investment account at December 31st., 2020?

i. $673,000

ii. $697,000

iii. $637,000

iv. $661,000.