On January 3, 2020, Baxter, Inc. acquired 40% of the outstanding common stock of Anchor Co. for $2,800,000. This investment gave Baxter the ability to exercise significant influence over Anchor. Anchor's assets on that date were recorded at $11,700,000 with liabilities of $4,700,000. There were no other differences between book and fair values.During 2020, Anchor reported net income of $600,000. For 2021, Anchor reported net income of $900,000. Dividends of $350,000 were paid in each of these two years.How much income did Baxter report from Anchor for 2020?

Question

Quizplus · Accepted Answer

Baxter owns 40% of Anchor and can exercise significant influence, so it uses the equity method. For 2020, Baxter's share of Anchor's net income is 40% of $600,000, which equals $240,000.