Carrying Value Calculation for Equity Method Investment

Carrying Value Calculation Explanation

Equity Method Investment: ABC Company owns 30% of the outstanding shares of Teal Company, which is considered an equity method investment where ABC recognizes its share of Teal's net income on its balance sheet.

Initial Carrying Value: At the beginning of the current year, the carrying value of Teal's stock on ABC's balance sheet was $60,000.

Net Income and Dividends: During the period, Teal paid dividends of $10,000 and reported a net income of $40,000.

Calculations:

Profit Made: Profit made at the end of the period = $40,000

Dividends Paid: Dividends paid = $10,000

Attributable Income: Attributable income to shareholders = $40,000 - $10,000 = $30,000

ABC's Portion of Attributable Profit: ABC's portion of attributable profit = $30,000 * 30% = $9,000

Conclusion:

The carrying value of Teal's stock on ABC's balance sheet at the end of the year is calculated by adding the initial carrying value and the portion of the attributable profit. Therefore, the carrying value is $60,000 + $9,000 = $69,000.