Question

On January 2, 2018, Howdy Doody Corporation purchased 13% of Ranger Corporation's common stock for $52,000. Ranger's net income for the years ended December 31, 2018 and 2019, were $13,000 and $56,000, respectively. During 2018, Ranger declared and paid a dividend of $67,000. On December 31, 2018, the fair value of the Ranger stock owned by Howdy Doody had increased to $66,000. How much should Howdy Doody show in the 2018 income statement as income from this investment

Answer 1

Answer: $22710

Step-by-step explanation:

First and foremost, we have to calculate the dividend that was received by Howdy Doody corporation which will be:

= $67000 × 13%

= $67000 × 0.13

= $8710

Then, we calculate the increase in the fair value of the stock that was credited to the income statement which will be:

= $66000 - $52000

= $14000

We then add both the dividend received and the increase in fair value which will be:

= $8710 + $14000

= $22710