FTX Company owns 10% interest in the stock of Zip Corporation. During the year, Zip pays $4,000 in dividends to FTX, and reports a net loss of $100,000. FTX Company's investment in Zip will affect FTX net income by a
A) $4,000 increase.
B) $10,000 increase.
C) $10,000 decrease.
D) $4,000 decrease.

Question

Quizplus · Accepted Answer

FTX owns less than 20% of Zip, so it uses the cost method. Dividends received increase FTX's net income by $4,000. The net loss of Zip does not affect FTX's net income under the cost method.

FTX Company Owns 10% Interest in the Stock of Zip