On January 1,20X4,Pony Company acquired 25% of Stallion Company's common stock at underlying book value of $200,000.Stallion has 80,000 shares of $10 par value,6 percent cumulative preferred stock outstanding.No dividends are in arrears.Stallion reported net income of $270,000 for 20X4 and paid total dividends of $140,000.Pony uses the equity method to account for this investment.
-Based on the preceding information,what amount would Pony Company receive as dividends from Stallion for the year?

Question

Quizplus · Accepted Answer

Pony Company owns 25% of Stallion Company. Stallion paid total dividends of $140,000. However, before calculating the dividends received by Pony, we must account for the preferred dividends. Stallion has 80,000 shares of preferred stock with a 6% dividend rate and a $10 par value, which equals $48,000 (80,000 shares * $10 * 6%). The remaining dividends for common shareholders are $140,000 - $48,000 = $92,000. Pony, owning 25% of the common stock, would receive 25% of $92,000, which is $23,000.

On January 1,20X4,Pony Company Acquired 25% of Stallion Company's Common