On 1 January 2016,Sky-High Ltd acquired 100 000 shares (30 per cent of the voting interest)in Down Ltd for $600 000 cash.On 30 June 2016,Down Ltd announced its earnings per share for the first six months of 2016 at $1.50 per share.On 20 November,Down Ltd paid dividends to shareholders at $0.90 per share.On 31 December 2016,Down Ltd announced its earnings per share for 2016 at $2.80 per share (i.e. ,$1.30 additional since 30 June).
- If Sky-High Ltd used the cost basis,what dividend revenue did it record for the year ended 31 December 2016 in respect of its investment in Down Ltd?

Question

Quizplus · Accepted Answer

Since Sky-High Ltd used the cost basis, the dividend revenue recorded will be based on the dividends received. 
On 20 November, Down Ltd paid dividends to shareholders at $0.90 per share, and Sky-High Ltd owns 30,000 shares (30% of 100,000 shares). Therefore, Sky-High Ltd received a dividend of:
$0.90 x 30,000 = $27,000
Hence, the dividend revenue that Sky-High Ltd recorded for the year ended 31 December 2016 in respect of its investment in Down Ltd is $90,000 (3 times the amount received in November, since dividends are usually paid quarterly).

On 1 January 2016,Sky-High Ltd Acquired 100 000 Shares (30