Barcelona Company owns 40% interest in the stock of ABX Corporation. During the year, ABX pays $40,000 in dividends to Barcelona, and reports $300,000 in net income. Barcelona Company's investment in ABX will increase Barcelona net income by
A) $104,000.
B) $120,000.
C) $80,000.
D) $16,000.

Question

Quizplus · Accepted Answer

To calculate the increase in Barcelona's net income, we need to use the equity method formula: 
Net Income = (Ownership Percentage x ABX Net Income) - Dividends Received 
Net Income = (0.4 x $300,000) - $40,000 
Net Income = $120,000 
Therefore, the answer is B.

Barcelona Company Owns 40% Interest in the Stock of ABX