Haystack, Inc $$\begin{array} { l r } \text { Dividends declared and paid } & \$ 400,000 \\\text { Net income } & 2,400,000\end{array}$$

question 7

Multiple Choice

Haystack, Inc. owns 30% of the outstanding stock of Hallmark, Inc. and accordingly uses the equity method to account for its investment. The stock was purchased on January 1, 2015 for $880,000. During the year ended December 31, 2015, Hallmark, Inc. reported the following: $$\begin{array} { l r } \text { Dividends declared and paid } & \$ 400,000 \\\text { Net income } & 2,400,000\end{array}$$ Haystack, Inc. uses the FIFO method for costing its inventories, while Hallmark, Inc. uses the LIFO method to conform with other companies in its industry. Haystack, Inc. determines that if Hallmark, Inc. had used the FIFO method, its income would have been $350,000 higher during 2015. What is the balance in the Investment in Hallmark, Inc. that will be reported on Haystack, Inc.'s balance sheet at December 31, 2015 assuming Haystack, Inc. follows U.S. GAAP for its external financial reporting?

• A) $1,825,000
• B) $1,480,000
• C) $1,585,000
• D) $1,375,000

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