Ashley Company
Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010. During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2010 the market value of a share of Judd, Inc. stock has increased to $32 per share.
-If Ashley Company accounts for the investment as a minority,passive and classifies the investment as an available-for-sale investment,Ashley will recognize what amount of 2010 income from the investment?

Question

Quizplus · Accepted Answer

As the investment is classified as available-for-sale, any changes in the market value of the investment should not impact the income recognition. Therefore, Ashley Company will only recognize the dividend income in 2010, which is calculated as follows:

Dividend income = Number of shares owned x Dividend per share
Dividend income = 2,000 x $5
Dividend income = $10,000

Thus, the correct answer is B, $10,000.

Ashley Company Ashley Company Purchased 2,000 of the 10,000 Outstanding Shares of Shares