Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2013 and paid dividends of $60,000 on October 1, 2013. How much income should Gaw recognize on this investment in 2013? a. $ 16,500 b. $ 9,000 c. $ 25,500

Question

Business

Maddison Harvey

6 May, 10:00

Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2013 and paid dividends of $60,000 on October 1, 2013. How much income should Gaw recognize on this investment in 2013? a. $ 16,500 b. $ 9,000 c. $ 25,500

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Answers (1)

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Lisa Nixon · Answer 1

The correct answer is option (B).

Explanation:

According to the scenario, the given data are as follows:

Net income = $110,000

Dividends paid = $60,000

Common stock owns = 15%

So, we can calculate the income for particular investment by using following method:

Income to be recognized = Dividends paid * Common stock owned

by putting the value, we get

= $60,000 * 15%

= $60,000 * 0.15

= $9,000

Hence, the income to be recognized on this investment is $9,000.