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11 November, 08:52

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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  1. 11 November, 09:50
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    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.
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Home » Business » 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.
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