QUESTION 15On January 1, 20X7, Poke Corporation acquired 25 percent of the outstanding shares of Shove Corporation for $100,000 cash. Shove Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Poke was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively.If instead, Poke could not exercise significant influence over the investee, by what amount will Poke's 20X7 income increase due to its investment in Shove? $7,500 $12,500 $17,500 $11,250

The fair value of shares is considered as Other Comprehensive Income instead of net income. Increase in Investment = Shove's Net Income Share - Shove's Dividend = ($75,000 x 25%) - ($30,000 x 25%) = $18,750 - $7,500 = $11,250 Hence 4th option is correct.

Answered: On January 1, 20X7, Poke Corporation…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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QUESTION 15

On January 1, 20X7, Poke Corporation acquired 25 percent of the outstanding shares of Shove Corporation for $100,000 cash. Shove Company reported net income of $75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held by Poke was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively.

If instead, Poke could not exercise significant influence over the investee, by what amount will Poke's 20X7 income increase due to its investment in Shove?

$7,500

$12,500

$17,500

$11,250

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