On January 1, 2012, Rex Corporation purchased 35% of the outstanding stock of Alamo Corporation for $500,000. Net income reported by Alamo for 2012 was $150,000. Dividends paid by Alamo during 2012 were $40,000. The amount of investment revenue that Rex should recognize for 2012 is:

Question

Quizplus · Accepted Answer

Under the equity method of accounting, Rex would recognize its share of Alamo's net income and subtract any dividends received.

Rex's share of Alamo's net income = 35% x $150,000 = $52,500

Subtract dividends received = $52,500 - $40,000 = $12,500

Therefore, the amount of investment revenue that Rex should recognize for 2012 is $52,500 - $12,500 = $40,000.

On January 1, 2012, Rex Corporation Purchased 35% of the Outstanding