Republic Corp.owns a 15% interest in the common shares of Wholesome Ltd.During this year, Wholesome pays a total of $25,000 in dividends and reports $160,000 net income.Republic's investment in Wholesome will increase Republic's net income by
A)$25,000.
B)$24,000.
C)$27,750.
D)$ 3,750.

Question

Quizplus · Accepted Answer

Republic Corp. owns 15% of Wholesome Ltd., so it will recognize 15% of Wholesome's net income as its own, which is $160,000 * 15% = $24,000. However, dividends received do not affect net income under the equity method, so the increase in net income is solely from the share of net income, not dividends.