Question

On January 2, 2017, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000. Ranger's net income for the years ended December 31, 2017 and 2018, were $10,000 and $50,000, respectively. During 2018, Ranger declared and paid a dividend of $60,000. There were no dividends in 2017. On December 31, 2018, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2018 income statement as income from this investment

Answer 1

$7,200

Step-by-step explanation:

On January 2017 Howdy Doody corporation purchased 12% of Ranger's corporation common stock for $50,000

Rangers net income for 2017 and 2018 were $10,000 and $50,000 respectively

During 2018 Ranger paid a dividend of $60,000

Therefore the amount in which Howdy Doody should show in their income statement from this investment can be calculated as follows

= 12/100 × $60,000

= 0.12 × $60,000

= $7,200

Hence Howdy Doody should show $7,200 in their income statement