Ashley Company
Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010.During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd, Inc.stock has increased to $32 per share.
-If Ashley Company accounts for the investment as a minority,active investment and uses the equity method to account for the investment,then Ashley will recognize what amount of 2010 income from the investment?
A) $4,000
B) $10,000
C) $25,000
D) $15,000

Question

Quizplus · Accepted Answer

According to the equity method, Ashley Company will recognize its share of Judd's net income, which is $15,000 ($75,000 x 2,000/10,000). The dividend declared by Judd does not affect the equity method calculation. The increase in the market value of Judd's stock is not relevant for the equity method.

Ashley Company Ashley Company Purchased 2,000 of the 10,000 Outstanding Shares of Shares