StarTech Company bought 40% of AML Company on January 2, 2014, for their book value of $400,000.During 2014 AML earned net income of $60,000 and paid dividends of $16,000; there were no transactions between the two companies.What amount of investment income would StarTech Company report in 2014 with respect to its investment in AML Company?

Question

Quizplus · Accepted Answer

StarTech Company owns 40% of AML, so it uses the equity method. Investment income is 40% of AML's net income: 40% of $60,000 = $24,000.

StarTech Company Bought 40% of AML Company on January 2