On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares...
On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share and did not elect the fair value option. Denver has significant influence over Eagle's operations. On December 15, Year 1, Eagle paid $40,000 in dividends to its common shareholders. Eagle's net income for the year ended December 31, Year 1, was $120,000, earned evenly throughout the year. In its Year 1 income statement, what amount of income from this investment should Denver report?
| A. |
$36,000 |
|
| B. |
$18,000 |
|
| C. |
$12,000 |
|
| D. |
$6,000 |
On January 1, Dyer Co. acquired as a long-term investment a 20% common stock interest in Eason Co. Dyer paid $700,000 for this investment when the fair value and carrying amount of Eason's net assets was $3.5 million. Dyer can exercise significant influence over Eason's operating and financial policies. For the year ended December 31, Eason reported net income of $400,000 and declared and paid cash dividends of $160,000. How much income from this investment should Dyer report for the year?
| A. |
$32,000 |
|
| B. |
$48,000 |
|
| C. |
$80,000 |
|
| D. |
$112,000 |
Homework Answers
|
1. It is given that Denver Corp didn't elect fair value method. Percentage of ownership = 3,000 shares/10,000 shares=30% Period of holding = 6 months (July - December) So, amount of income from investment to be recorded by Denver = 120,000*30%*(6/12) = $18,000 |
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Exercise 22-22
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Exercise 22-22
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