On January 1,20X8,Pullman Company acquired 30 percent of Skate Company's common stock,at underlying book value of $100,000.Skate has 100,000 shares of $2 par value,5 percent cumulative preferred stock outstanding.No dividends are in arrears.Skate reported net income of $150,000 for 20X8 and paid total dividends of $72,000.Pullman uses the equity method to account for this investment.
-Based on the preceding information,what amount would Pullman Company receive as dividends from Skate for the year?
A)$62,000
B)$21,600
C)$18,600
D)$54,000

Question

Quizplus · Accepted Answer

Pullman Company owns 30% of Skate Company. First, calculate the preferred dividends: 100,000 shares * $2 par value * 5% = $10,000. Total dividends paid were $72,000, so common dividends = $72,000 - $10,000 (preferred dividends) = $62,000. Pullman's share of common dividends = 30% * $62,000 = $18,600.

On January 1,20X8,Pullman Company Acquired 30 Percent of Skate Company's