On January 1, 20X7, Phillips Corporation acquired 35 percent of the outstanding shares of Shell Corporation for $100,000 cash. Shell Company reported net income of $175,000 and paid dividends of $25,000 for both 20X7 and 20X8. The fair value of shares held by Phillips was $310,000 and $325,000 on December 31, 20X7 and 20X8 respectively.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

On January 1, 20X7, Phillips Corporation acquired 35 percent of the outstanding shares of Shell Corporation for $100,000 cash. Shell Company reported net income of $175,000 and paid dividends of $25,000 for both 20X7 and 20X8. The fair value of shares held by Phillips was $310,000 and $325,000 on December 31, 20X7 and 20X8 respectively.
Based on the preceding information, what amount will be reported by Phillips as its basis in the Shell investment for 20X7, if it used the equity method of accounting?

Group of answer choices

$122,500

$161,250

$100,000

$152,500

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