Jambon Company owns 10% interest in the stock of Fanth Corporation. During the year, Fanth pays $12,000 in dividends to Jambon, and reports $200,000 in net income. Jambon Company's investment in Fanth will increase Jambon net income by
A) $20,000.
B) $19,200.
C) $12,000.
D) $8,000.

Question

Quizplus · Accepted Answer

Jambon Company owns less than 20% of Fanth Corporation, so it uses the cost method for accounting. Under this method, only the dividends received are recognized as income. Therefore, Jambon's net income increases by the $12,000 in dividends received.

Jambon Company Owns 10% Interest in the Stock of Fanth