On January 1, 2016, Entertainment Company acquired 15% of the outstanding voting stock of Rocker Company as a long-term investment in available-for-sale securities. During 2016, Rocker Company reported net income of $1,500,000 and dividends were declared and paid in the amount of $250,000. How much income will be reported during 2016 from the Rocker investment?

Question

Quizplus · Accepted Answer

The income reported from the Rocker investment is based on the dividends received, not the net income, because the investment is classified as available-for-sale and is less than 20% ownership. Therefore, 15% of the $250,000 dividends is $37,500.

On January 1, 2016, Entertainment Company Acquired 15% of the Outstanding