Carmen Corporation purchased a 40% interest in Sahara Inc. on January 1, 2010, paying $200,000 for 40% of the outstanding voting stock of Sahara Inc. For its year ended December 31, 2010, Sahara Inc. reported net income of $40,000. On December 31, 2010, Carmen received a dividend payment from Sahara in the amount of $1,000. As a result of its ownership interest in Sahara, the financial statements for Carmen Corporation for the year ended December 31, 2010 will reflect which of the following:

Question

Quizplus · Accepted Answer

Carmen Corporation will recognize 40% of Sahara Inc.'s net income as revenue, which is $16,000 (40% of $40,000).

Carmen Corporation Purchased a 40% Interest in Sahara Inc