I am confused by the example in the CFAI text on pp.81-83 of Reading 22. The example specifically states that Company ABC received 50% of the dividends paid by Company XYZ or $25,000. Yet, the cash account increased by only $20,000 on December 31, 2001 to $520,000, but the PPE account increased to $4,450,000. By my calculations, the PPE account should have been $4,250,000 January 1, 2001 amount + $225,000 FMV - BV difference - $75,000 2001 depreciation of the FMV - BV difference ----------------- $4,400,000. and the cash account should have been $500,000 January 1, 2001 amount + $25,000 50% of dividends from XYZ ------------- $525,000 It would appear that the CFAI text is wrong because they shifted the $5,000 from cash to PPE. If not, please let me know why the accounts are the way they are under the purchase method.
I can understand that the $5,000 cash may have gone into PPE from Company ABC’s normal investing activities, but for illustration purposes of the purchase method, I think the example is needlessly confusing.