Assume that Company P purchases a 10% common stock interest in Company S for $12,000 on January 1, 20X2, and an additional 20% interest on January 1, 20X3, for $26,000. There was no excess of cost or book value on either investment. The balance sheets of Company, S which pays no dividends, follow: For 20X3, Company P reports investment income of ____.

Question

Assume that Company P purchases a 10% common stock interest in Company S for $12,000 on January 1, 20X2, and an additional 20% interest on January 1, 20X3, for $26,000. There was no excess of cost or book value on either investment. The balance sheets of Company, S which pays no dividends, follow:  For 20X3, Company P reports investment income of ____.

Quizplus · Accepted Answer

In 20X3, Company P would recognize 30% of Company S' income
Difference in retained earnings 60,000 - 30,000 = 30,000 x 30% = 9,000

Assume That Company P Purchases a 10% Common Stock Interest