Copper Company purchased 40% of the common stock of York Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of York Corporation showed the following on December 31,2019: How much investment income should Copper report from the York investment during 2019?
A)$290,000.
B)$108,000.
C)$116,000.
D)$8,000.

Question

Copper Company purchased 40% of the common stock of York Corporation on January 1,2019,for $2,000,000 as a long-term investment.The records of York Corporation showed the following on December 31,2019:  How much investment income should Copper report from the York investment during 2019?
A)$290,000. 
B)$108,000. 
C)$116,000. 
D)$8,000.

Quizplus · Accepted Answer

According to the information provided, Copper Company purchased 40% of the common stock of York Corporation on January 1, 2019, for $2,000,000 as a long-term investment. Therefore, Copper Company has significant influence over York Corporation and should use the equity method to account for the investment.

Using the equity method, Copper Company would recognize its share of York Corporation's net income or loss as investment income or loss. The records of York Corporation showed a net income of $290,000 for the year ended December 31, 2019. Therefore, Copper Company's share of the net income would be $290,000 x 40% = $116,000.

Therefore, the correct answer is C, $116,000, which represents the amount of investment income that Copper Company should report from the York investment during 2019.

Copper Company Purchased 40% of the Common Stock of York