On January 1, 2011, Capitech Corporation acquired Logirun, Inc. as a long-term investment for $250,000 (a 30 percent common stock interest in Logirun). On that date, Logirun had net assets with a book value and current market value of $800,000. During 2011, Logirun reported net income of $90,000 and declared and paid cash dividends of $20,000. What is the maximum amount of income that Capitech should report from this investment for 2011?

Question

Quizplus · Accepted Answer

Capitech Corporation has a 30% common stock interest in Logirun, Inc. Therefore, Capitech should report its share of Logirun's net income as investment income. Logirun's net income for 2011 was $90,000, so Capitech's share would be $27,000 (30% of $90,000). Since no information is provided about any impairment or unrealized gains/losses on the investment, this amount is the maximum income that Capitech should report for 2011. Therefore, the correct answer is C.

On January 1, 2011, Capitech Corporation Acquired Logirun, Inc