An investor company owns 40% of the outstanding common stock of an investee company, which allows the investor to exercise significant influence over the investee. The Equity Investment was reported at$1,050,000 as of the end of the previous year. During the year, the investor received dividends of $110,000 from the investee. The investee reports the following income statement for the year:RevenuesExpenses$2,700,0001,800,000900,000100,000Comprehensive income$1,000,000a. How much equity income should the investor report in its net income (i.e., as part of the current year income statement)?Net incomeOther comprehensive income$0b. What amount should the investor report for the Equity Investment in its balance sheet at the end of the year?$0

As per the equity method an investment is to be recognised at cost on initial recognition.

Answered: An investor company owns 40% of the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Required information [The following information applies to the questions displayed below.] Lone Star Company is a calendar-year corporation, and this year Lone Star reported $148,000 in current E&P that accrued evenly throughout the year. At the beginning of the year, Lone Star's accumulated E&P was $17,760. Lone Star declared $44,400 in cash distributions on each of the following dates: April 1, July 1, October 1, and December 31. Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. b. Suppose that Matt owned all Lone Star's shares at the beginning of the year and sold half of the shares to Chris on June 1st for $59,200. How much dividend income will Matt recognize this year? Dividend recognized
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