Calculate income and investment balance for midyear investment
Arb Corporation acquired 25 percent of Tee Corporation’s outstanding common stock on October 1, for $600,000. A summary of Tee’s adjusted trial balances on this date and at December 31 follows (in thousands):
|
December 31 |
October 1 |
|
|
Debits |
$ 500 |
$ 250 |
|
Current assets |
1,500 |
1,550 |
|
Plant assets—net |
800 |
600 |
|
Expenses (including cost of goods sold) |
200 |
200 |
|
Dividends (paid in July) |
$3,000 |
$2,600 |
|
Credits |
$ 300 |
$ 200 |
|
Current liabilities |
1,000 |
1,000 |
|
Capital stock (no change during the year) |
500 |
500 |
|
Retained earnings January 1 |
1,200 |
900 |
|
Sales |
$3,000 |
$2,600 |
Arb uses the equity method of accounting. No information is available concerning the fair values of Tee’s assets and liabilities.
REQUIRED
1. Determine Arb’s investment income from Tee Corporation for the year ended December 31.
2. Compute the correct balance of Arb’s investment in Tee account at December 31.