On January 1,2019,Entertainment Company acquired 15% (80,000 shares)of the outstanding voting stock of Rocker Company as a long-term investment for $1,784,000.During 2019,Rocker Company reported net income of $1,500,000 and dividends were declared and paid in the amount of $250,000.How much income will be reported during 2019 from the Rocker investment if the year-end price of the shares is $22.30 per share?

Question

Quizplus · Accepted Answer

The income reported from the Rocker investment will be based on the dividends received because the investment is accounted for under the cost method, given the ownership is less than 20%. The income is 15% of $250,000 (dividends), which equals $37,500. The year-end price of the shares does not affect the income recognized for the year.

On January 1,2019,Entertainment Company Acquired 15% (80,000 Shares)of the Outstanding