On January 1, 2016, Calas Company acquired 40% of the outstanding voting common stock of Nick Company as a long-term investment. During 2016, Nick reported net income of $10,000 and declared and paid dividends of $4,000. During 2016, Calas Company should report equity in affiliate earnings of:

Question

Quizplus · Accepted Answer

Since Calas Company owns 40% of the outstanding voting common stock of Nick Company, Calas Company is considered an equity method investor. Therefore, Calas Company should report its share of Nick's net income (40% x $10,000 = $4,000) as equity in affiliate earnings on its income statement. Dividends declared and paid do not affect equity in affiliate earnings. Thus, the correct answer is B.

On January 1, 2016, Calas Company Acquired 40% of the Outstanding