ABC company uses the equity method to account for its 40% interestt in voting stock of XYZ company. ABC paid $5,000,000 for investment at the beginning of the current year, and XYZ's total book value at the time was $6,000,000. The discrepancy between acquisition cost and share of book value acquired

the end of year book value would be $5,160,000.

Explanation:

given data

equity method to account = 40%

ABC paid investment = $5,000,000

total book value = $6,000,000

solution

when there are more than 20% stake in other company

than we apply equity method

so here we use  

Amount of investment                                                           = $5,000,000

Share in net incom  (600,000 x 40%)                                  = $240,000

Share in the dividend (200,000 x 40%)                               = -$80,000

Book value at the end of the year                                         = $5,160,000

So the end of year book value would be $5,160,000.

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