Question

Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2018, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2018, how much income should Yaro recognize related to this investment?

Answer 1

Investment Income= $75,000

Step-by-step explanation:

Percentage of Stock Owned: 30%

Reported Income for 2018: $250,000

Investment Income: $250,000 x 30% = $75,000

Dividend Paid: $80,000 x 30% = $24,000

Of the $75,000 total income, $24,000 were paid as dividends and the rest remain as Dividend Receivable.