REFERENCE: Ref.01_07
On January 1,2007,Mehan,Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook.On January 1,2008 Mehan purchased an additional 25,000 shares (25%)of Cook for $300,000.This last purchase gave Mehan the ability to apply significant influence over Cook.The book value of Cook on January 1,2007,was $1,000,000.The book value of Cook on January 1,2008,was $1,150,000.Any excess of cost over book value for this second transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows.These amounts are assumed to have occurred evenly throughout the years:
On ,April 1,2009,just after its first dividend receipt,Mehan sells 10,000 shares of its investment.
-How much of Cook's net income did Mehan report for the year 2009?

Question

REFERENCE: Ref.01_07
On January 1,2007,Mehan,Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook.On January 1,2008 Mehan purchased an additional 25,000 shares (25%)of Cook for $300,000.This last purchase gave Mehan the ability to apply significant influence over Cook.The book value of Cook on January 1,2007,was $1,000,000.The book value of Cook on January 1,2008,was $1,150,000.Any excess of cost over book value for this second transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows.These amounts are assumed to have occurred evenly throughout the years:
  On ,April 1,2009,just after its first dividend receipt,Mehan sells 10,000 shares of its investment.
-How much of Cook's net income did Mehan report for the year 2009?

Quizplus · Accepted Answer

Mehan's ownership percentage in Cook was 15% in 2007 and 40% (15% + 25%) in 2008 and 2009. Therefore, Mehan should report 40% of Cook's net income for those years. 
For 2009, Cook's net income would be (($1,150,000 - $150,000) × 10%) + (($300,000 / 5) × 40%) = $69,000 + $48,000 = $117,000. 
Mehan only owned 10,000 shares during the portion of the year when Cook reported net income, so Mehan's share of Cook's net income for 2009 is 10,000/40,000 x $117,000 = $29,250. 
However, Mehan received dividends from Cook for the entire year, so Mehan's total income from Cook for 2009 is $29,250 + ($117,000 × 40%) = $81,250. Therefore, the correct answer is B.

REFERENCE: Ref.01_07 on January 1,2007,Mehan,Incorporated Purchased 15,000 Shares of Cook Company for Company