Chopper Company owns 15% interest in the stock of Elton Corporation. During the year, Elton pays $10,000 in dividends to Chopper, and reports $400,000 in net income. Chopper Company's investment in Elton will increase Chopper net income by
A) $10,000.
B) $50,000.
C) $60,000.
D) $1,500.

Question

Quizplus · Accepted Answer

Chopper Company owns less than 20% of Elton Corporation, so it uses the cost method. Under this method, only dividends received are recognized as income. Therefore, the $10,000 in dividends increases Chopper's net income.

Chopper Company Owns 15% Interest in the Stock of Elton