Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for $492,300. At the time of the combination, Station reported common stock outstanding of $121,000 and retained earnings of $386,000, and the fair value of the noncontrolling interest was $54,700. The book value of Station’s net assets approximated market value except for patents that had a market value of $40,000 more than their book value. The patents had a remaining economic life of five years at the date of the business combination. Station reported net income of $60,000 and paid dividends of $23,000 during 20X1. Required: a. What balance did Public report as its investment in Station at December 31, 20X1, assuming Public uses the equity method in accounting for its investment

When we follow equity method then we add the entire earnings of our share in the subsidiary in the carrying value, and if any dividends received will decrease the carrying value of investments.

Here investment = $492,300

Already the common stock, retained earnings, value of patent is considered while computing this value.

In the year ending 20X1 we are provided that Station Company earns a profit of $60,000 in which share of Public Corporation = $60,000 [tex]\times[/tex] 90% = $54,000

Also dividend has been paid which will decrease the carrying value = $23,000 [tex]\times[/tex] 90% = $20,700

Thus net carrying value of investment in Station Company = $492,300 + $54,000 - $20,700 = $525,600