Question

Trapp Company reported net income of $110,000 for 2019 and paid dividends of $60,000 on November 1, 2019. Grape Company owns 15% of the common stock of Trapp and used the fair-value method to account for this investment. How much income should Grape recognize on this investment in 2019?

Answer 1

$9,000

Step-by-step explanation:

Given that,

Trapp Company reported,

Net income for 2019 = $110,000

Dividends paid on November 1, 2019 = $60,000

Grape Company owns 15% of the common stock of Trapp.

Using a fair-value method,

Therefore,

Income earned by Grape company is as follows:

= 15% of the total amount of dividend paid

= 0.15 × $60,000

= $9,000