Question

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2014. Sherman Corporation had 100,000 shares of common stock outstanding during 2015, paid cash dividends of $90,000 during 2015, and reported net income of $300,000 for 2015. Ziegler Corporation should report revenue from investment for 2015 in the amount of:___________

a. $22,500.
b. $52,500.
c. $75,000.
d. $82,500.

Answer 1

c. $75,000

Step-by-step explanation:

The computation of revenue from investment for 2015 is shown below:-

Investment in Sherman = Purchased shares ÷ Common stock shares

= 25,000 ÷ 100,000

= 25%

Revenue from investment = Net income × Investment in Sherman

= $300,000 × 25%

= $75,000

Therefore for computing the revenue from investment we simply multiplied the net income with investment in Sherman.