On January 2,2015,Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale.Ranger's net income for the years ended December 31,2015 and 2016,were $10,000 and $50,000,respectively.During 2016,Ranger declared and paid a dividend of $60,000.There were no dividends in 2015.On December 31,2015,the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000.How much should Howdy Doody show in the 2016 income statement as income from this investment?

Question

Quizplus · Accepted Answer

Since the investment is classified as available for sale, the unrealized gain or loss is reported as part of other comprehensive income on the balance sheet, not on the income statement. Therefore, the only income recognized in the income statement is the dividend income.

For 2016, the dividend income would be calculated as follows:

Dividend income = 12% x $60,000 = $7,200

Therefore, the correct answer is B) $7,200.

On January 2,2015,Howdy Doody Corporation Purchased 12% of Ranger Corporation's