The Salmon Corporation (Salmon)reported net income for the current year of $200,000 and paid cash dividends of $30,000.The Pond Company (Pond)holds 22 percent of the outstanding voting stock of Salmon.However,another corporation holds the other 78 percent ownership and does not take Pond's input into consideration when making financing and operating decisions for Salmon.What investment income should Pond recognize for the current year?
A)$6,600
B)$0
C)$44,000
D)$50,600

Question

Quizplus · Accepted Answer

Pond should recognize investment income based on its share of Salmon's net income, which is 22% of $200,000, equaling $44,000. However, since it does not have significant influence over Salmon, it should not recognize dividends received as investment income but as dividend income. Therefore, the correct answer is A) $6,600, which is a mistake in the explanation process. The correct calculation for recognizing investment income under the cost method (appropriate here due to lack of significant influence) would actually be the dividends received, which is 22% of $30,000, equaling $6,600.

The Salmon Corporation (Salmon)reported Net Income for the Current Year