Wood Co. owns 2,000 shares of Arlo, Inc.'s 20,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock and 1,000 shares (2%) of Arlo's common stock. During Year 2, Arlo declared and paid dividends of $240,000 on preferred stock. No dividends had been declared or paid during Year 1. In addition, Wood received a 5% common stock dividend from Arlo when the quoted market price of Arlo's common stock was $10 per share. What amount should Wood report as dividend income in its Year 2 income statement?$24,000

$24,500$24,550$25,000

Question

Business

Jace Henson

10 October, 08:31

Wood Co. owns 2,000 shares of Arlo, Inc.'s 20,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock and 1,000 shares (2%) of Arlo's common stock. During Year 2, Arlo declared and paid dividends of $240,000 on preferred stock. No dividends had been declared or paid during Year 1. In addition, Wood received a 5% common stock dividend from Arlo when the quoted market price of Arlo's common stock was $10 per share. What amount should Wood report as dividend income in its Year 2 income statement?$24,000

$24,500$24,550$25,000

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Answers (1)

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Wall · Answer 1

Dividend income of $24,000

Explanation:

Wood Co. owns 2000 out of the 20000 cumulative, non-participating preferred shares, which implies that out of all preferred dividends declared and paid by Arlo inc, Wood Co, get 2000/20000 of the dividends

Wood Co's dividends = 2,000/20,000*$240,000

=$24,000

The stock dividend of 5% of common stock is not to be recognized as dividend income but an increase in investment in Arlo Inc, a capital gains yield not dividend yield

Capital gains yield is the return from investment in form capital appreciation while dividend is a revenue return from investment