Chopper Company owns 10% 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) $30,000.
C) $40,000.
D) $1,000.

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, Chopper's net income increases by the $10,000 in dividends received.

Chopper Company Owns 10% Interest in the Stock of Elton