West Corporation purchased 15,000 shares of Luffy Corporation common stock for $60 per share on January 2,2009.Luffy Corporation reported net income of $1,500,000 for 2009 and paid dividends of $300,000 during 2009.Luffy has a total of 50,000 shares of common stock outstanding.The entry that would be recorded to recognize the income is:

Question

Quizplus · Accepted Answer

The entry to recognize the income and dividends received from the investment in Luffy Corporation common stock would be recorded using the equity method. 
The entry would be:
Investment in Luffy Corporation Common Stock                                               $1,500,000 
   Equity in Net Income of Luffy Corporation
       (15,000 shares/50,000 outstanding) 
Dividends Receivable                                                                                   $45,000 
   Investment in Luffy Corporation Common Stock Dividends
       (15,000 shares/50,000 outstanding)

Therefore, the correct choice is B.

West Corporation Purchased 15,000 Shares of Luffy Corporation Common Stock Cash 90,000 Dividend Income 90,000\begin{array}{l}\text { Cash } &90,000\\\text { Dividend Income }&&90,000\end{array} Cash Dividend Income ​90,000​90,000​

West Corporation Purchased 15,000 Shares of Luffy Corporation Common Stock $\begin{array}{l}\text { Cash } &90,000\\\text { Dividend Income }&&90,000\end{array}$