On January 2,2013,Bismark Corporation bought 20 percent of Congeal Corporation's capital stock for $60,000 and classified it as available-for-sale securities.Congeal's net incomes for the years ended December 31,2013,and 2014,were $20,000 and $100,000,respectively.During 2014,Congeal declared a dividend of $110,000.No dividends were declared in 2013.On December 31,2014,the fair value of the Congeal stock owned by Bismark had increased to $90,000.How much should Bismark show on its 2014 income statement as income from this investment?

Question

Quizplus · Accepted Answer

Bismark Corporation bought 20% of the Congeal Corporation's capital stock for $60,000, which means they bought $300,000 worth of Congeal stock (since 100% of Congeal would be worth $1,500,000). 
In 2013, Bismark did not receive any dividends. 
In 2014, Congeal declared $110,000 in dividends, of which 20% ($22,000) goes to Bismark. 
The fair value of Bismark's investment in Congeal also increased from $60,000 to $90,000, resulting in a gain of $30,000. However, this gain is not recognized on the income statement as it is an unrealized gain (i.e. gain on paper only as Bismark has not sold the stock yet). 
Therefore, Bismark should show $22,000 as income from this investment on its 2014 income statement.

On January 2,2013,Bismark Corporation Bought 20 Percent of Congeal Corporation's