On January 1, 2011, Rider Corporation purchased 30% of the outstanding stock of Arapahoe Corporation for $770,000. Net income reported by Arapahaoe Corporation for 2011 was $120,000. Dividends paid by Arapahoe Corporation during 2011 were $70,000. The amount of investment revenue that Rider should recognize for 2011 is:

Question

Quizplus · Accepted Answer

Rider Corporation should use the equity method to account for its 30% investment in Arapahoe Corporation. Under the equity method, investment revenue is recognized based on the proportionate share of Arapahoe's net income, which is $36,000 (30% x $120,000). Dividends paid during the year do not affect the calculation of investment revenue under the equity method.

On January 1, 2011, Rider Corporation Purchased 30% of the Outstanding