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ABC Corporation purchased 25,000 shares of common stock of the Davison Corporation for $40 per share...

ABC Corporation purchased 25,000 shares of common stock of the Davison Corporation for $40 per share on January 2, 2018 (EQUITY METHOD). Davison Corporation had 100,000 shares of common stock outstanding during 2018, paid cash dividends of $150,000 during 2018, and reported net income of $500,000 for 2018. ABC Corporation should report revenue from investment for 2018 in the amount of ________.

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Answer #1

Answer:  

Shares Purchased for Davison Corporation on January 2, 2018 : 25,000 (at $40 each)

Total No. of Shares outstanding for Davison Corporation : 100,000

Investment of ABC Corporation in Davison Corporation: 25,000/100,000 = 25%

Dividend Declared by Davison Corporation: $150,000.

Net Income for the Year 2018 for Davison Corporation: $500,000.

Total revenue from investment for ABC Corporation will be: 25% of ($150,000+$500,000)

      : $162,500 ($37,500 from Dividend & $125,000 for proportionate income)

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