Question: On January 1, 2017, Wildhorse Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for $1,290,000. At the time, the book value and the fair value of John's net assets were $14,300,000.
On July 1, 2018, Wildhorse paid $2,910,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John's identifiable assets net of liabilities was equal to their carrying amount of $15,500,000. As a result of this transaction, Wildhorse owns 30% of John and can exercise significant influence over John's operating and financial policies. (Any excess fair value is attributed to goodwill.)
John reported the following net income and declared and paid the following dividends.
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Net Income
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Dividend per Share
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Year ended 12/31/17
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$670,000
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None
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Six months ended 6/30/18
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540,000
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None
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Six months ended 12/31/18
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876,000
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$1.40
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Required: Determine the ending balance that Wildhorse Co. should report as its investment in John Corp. at the end of 2018.
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