Orlov Corporation purchased 8,000 shares of Matsey Corporation common stock for $40 per share on January 1,2012.Matsey reported net income of $120,000 for 2012 and paid dividends of $42,000 during 2012.As of December 31,2012,the market value of Matsey Corporation common stock was $40 per share.Assuming the shares owned by Orlov represent 10 percent of the total outstanding stock of Matsey,the entry to record the receipt of dividend income in Orlov Corporation's books is:

Question

Quizplus · Accepted Answer

The total amount of dividends paid by Matsey Corporation during 2012 was $42,000. Since Orlov Corporation owns 10% of the outstanding shares, it is entitled to receive 10% of the total dividends, which is $4,200 ($42,000 x 0.10). Therefore, the entry to record the receipt of dividend income in Orlov Corporation's books is:

Cash 4,200
Dividend Income 4,200

Orlov Corporation Purchased 8,000 Shares of Matsey Corporation Common Stock