In January of the current year, Onyx Corporation purchased a 35% interest in Scout Inc. for $225,000. During the year, Scout Inc. declared and paid $37,000 of dividends. For the year ended December 31, Scout Inc. reported net income of $75,000. Determine the amount of the investment at year-end.

$238,300

Explanation:

The investment is classified as associate because the interest in Scout Incorporation is less than 50%. The associates are recorded using the equity method. The losses or gains on this investment are treated as decrease or increase in investment value according the shareholding of an investment. The dividend paid will be treated as decrease in investment at the shareholding percentage.

Investment Value = $225,000 + ($75,000 × 35%) - ($37,000 × 35%)

= $238,300

$238,300

Explanation:

Scout Inc. is regarded as an associate company to Onyx Corporation since the 35% interest purchased by Onyx Corporation is less than 50% that can qualify Scout Inc. as a subsidiary to Onyx Corporation.

Under the equity accounting, the share of reported net income in an associated company will make the investment amount in it to rise, while the payment of dividend makes it to fall. Based on this, we can proceed with the calculation as follows:

Onyx Corporation’s share of Scout Inc.’s reported net income = $75,000 × 35% = $26,250

Onyx Corporation’s share of dividend paid by Scout Inc. = $37,000 × 35% = $12,950

Therefore;

Onyx Corporation’s investment at year-end = $225,000 + $26,250 - $12,950 = $238,300

Therefore, the amount of Onyx Corporation’s investment in Scout Inc. at year-end is $238,300.

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