On January 4, 2010, Trycker, Inc. acquired 40% of the outstanding common stock of Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise significant influence over Inkblot. Inkblot's assets on that date were recorded at $8,000,000 with liabilities of $2,000,000. There were no other differences between book and fair values. During 2010, Inkblot reported net income of $500,000 and paid dividends of $300,000. The fair value of Inkblot at December 31, 2010 is $7,000,000. Trycker elects the fair value option for its investment in Inkblot.
How are dividends received from Inkblot reflected in Trycker's accounting records for 2010?

Question

Quizplus · Accepted Answer

Under the fair value option, dividends received are recorded as dividend income. Trycker's share of the dividends is 40% of $300,000, which is $120,000.