Copper Company purchased 40% of the common stock of York Corporation on January 1, 2016, for $2,000,000 as a long-term investment. The records of York Corporation showed the following on December 31, 2016: How much investment income should Copper report from the York investment during 2016?

Question

Copper Company purchased 40% of the common stock of York Corporation on January 1, 2016, for $2,000,000 as a long-term investment. The records of York Corporation showed the following on December 31, 2016:  How much investment income should Copper report from the York investment during 2016?

Quizplus · Accepted Answer

Copper Company purchased 40% of the common stock of York Corporation, which means it has significant influence over the company. Therefore, Copper should use the equity method of accounting for this investment. According to the records of York Corporation, the net income for the year 2016 was $290,000. Since Copper owns 40% of the common stock, its share of the net income is $116,000. Therefore, Copper should report $116,000 as investment income from the York investment during 2016.

Copper Company Purchased 40% of the Common Stock of York