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,passive and classifies the investment as an available-for-sale investment,Ashley will recognize what amount of 2010 income from the investment?

Question

Quizplus · Accepted Answer

Since Ashley Company is accounting for the investment as a minority, passive, and classifying it as an available-for-sale investment, the company will recognize income from the investment only when dividends are declared by Judd, Inc. In 2010, Judd declared a dividend of $5 per share, so Ashley Company will recognize income of $10,000 (2,000 shares x $5 per share). The increase in market value of Judd's stock is not recognized as income until Ashley Company sells the shares.

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