On January 1, 2010, Phillip Corporation bought 20% of Dyno Corporation's outstanding stock for $2,000,000 cash. On July 1, 2010, Dyno declared and paid $100,000 cash dividends to its stockholders. Dyno reported $900,000 net income for the fiscal year ended December 31, 2010. What is Phillip's total investment in Dyno at December 31, 2010?

Question

Quizplus · Accepted Answer

Phillip's total investment in Dyno at December 31, 2010, would be calculated by adding the equity income earned during the year to the initial investment and subtracting any dividends received. Phillip owns 20% of Dyno, so it would recognize 20% of Dyno's net income and dividends. The equity income from Dyno would be 20% of $900,000 = $180,000. The dividends received would be 20% of $100,000 = $20,000. Therefore, Phillip's total investment in Dyno at the end of the year would be the initial investment of $2,000,000 plus the equity income of $180,000 minus the dividends received of $20,000, resulting in $2,160,000.

On January 1, 2010, Phillip Corporation Bought 20% of Dyno