Question

Bakery Company owns 30% interest in the stock of Rolls Corporation. During the year, Rolls pays $75,000 in dividends to Bakery, and reports $400,000 in net income. Bakery Company's investment in Rolls will increase Bakery net income by _____.

Answer 1

Bakery Company's investment in Rolls will increase Bakery net income by $22,500.

Step-by-step explanation:

To calculate the increase in Bakery Company's net income from its investment in Rolls Corporation, we need to determine the amount of dividends received from Rolls.

The question states that Rolls paid $75,000 in dividends to Bakery.

Since Bakery owns a 30% interest in the stock of Rolls, we can calculate the total dividends received by multiplying the dividends paid by the ownership percentage.

Therefore, the increase in Bakery's net income from its investment in Rolls is $75,000 x 0.30 = $22,500.