Question

On January 1, 2011, Deuce Inc. acquired 15% of Wiz Co.'s outstanding common stock for $62,400 and categorized the investment as an available-for-sale security. Wiz earned net income of $96,000 in 2011 and paid dividends of $36,000. On January 1, 2012, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave Deuce the ability to significantly influence the decision making of Wiz. During 2012, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2012, Wiz reported a net book value of $468,000. For both purchases, Deuce concluded that Wiz Co.'s book values approximated fair values and attributed any excess cost to goodwill. What amount of equity income should Deuce have reported for 2012?

Answer 1

$30,000

Step-by-step explanation:

Calculation for the amount of equity income to reported

Using this formula

Equity income=[(Amount earned in 2012×(Outstanding common stock percentage +Additional percentage of Wiz)]

Let plug in the formula

Equity income = [($120,000 ×(15%+ 10%)]

Equity income = ($120,000 ×25%)

Equity income= $30,000

Therefore the amount of equity income to reported for 2012 will be $30,000