On January 1,20X7,Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash.Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8.The fair value of shares held by Yang was $110,000 and $105,000 on December 31,20X7 and 20X8 respectively.
-Based on the preceding information,what amount will be reported by Yang as income from its investment in Spiel for 20X8,if it used the fair value method of accounting?
A)$11,250
B)$2,500
C)$6,250
D)$7,500

Question

Quizplus · Accepted Answer

Under the fair value method, dividends received are recognized as income. Yang's share of dividends for 20X8 is 25% of $30,000, which is $7,500. However, the question asks for income from the investment, which under fair value method does not include share of net income, only dividends. Therefore, the income recognized is $7,500.

On January 1,20X7,Yang Corporation Acquired 25 Percent of the Outstanding