Question

On January 2, 2018, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $52,000. Ranger's net income for the years ended December 31, 2018 and 2019, were $14,000 and $57,000, respectively. During 2018, Ranger declared and paid a dividend of $64,000. On December 31, 2018, the fair value of the Ranger stock owned by Howdy Doody had increased to $69,000. How much should Howdy Doody show in the 2018 income statement as income from this investment?

Answer 1

The amount of income that Howdy Doody should show in their income statement as income from this investment is $24,680.

Step-by-step explanation:

For taking out the amount of income that Howdy Doody should show , we will include the amount of unrealized gain that the company is gaining because of the increase in the value of stock of Ranger corporation and the income from dividend which the company is receiving.

INCOME = Income from unrealized gain + Income from dividend

= current value of stock - purchase price of stock + dividend income

= $69,000 - $52,000 + $64,000 x 12%

= $17,000 + $7680

= $24,680