Question

Tamarisk Co. invested $940,000 in Vaughn Co. for 25% of its outstanding stock. Vaughn Co. pays out 40% of net income in dividends each year.

Use the information in the following T-account for the investment in Vaughn to answer the following questions.

Investment in Vaughn Co.
940,000
105,000
	42,000

(a) How much was Tamarisk Co.’s share of Vaughn Co.’s net income for the year?

(b) What was Vaughn Co.’s total net income for the year?
(c) What was Vaughn Co.’s total dividends for the year?

(d) How much was Tamarisk Co.’s share of Vaughn Co.’s dividends for the year?

Answer 1

Tamarisk share of net income = 105,000

Total net income for the year = 105,000/25% = 420,000

Total dividends = 42,000/25% = 168,000

Tamarisk Co share of dividends = 42,000