Question

On January 1, 2021, ABC Company purchased 15,000 shares (38%) of Riley Corp stock for $140,000....

On January 1, 2021, ABC Company purchased 15,000 shares (38%)
of Riley Corp stock for $140,000. During 2021, Riley Corp
reported a net income of $73,000 and paid dividends totaling
$15,000. At December 31, 2021 the Riley Corp stock was worth
$23.50 per share.

Calculate the amount of investment revenue related to the investment
in Riley Corp reported on ABC Company's 2021 income statement.
Business   Accounting   
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Homework Answers

Answer #1
As ABC corporation purchased more than 20% shares of Riley company(i.e. 38%)
Therefore, the equity method of recording the investment is applicable.
The Equity method states that share of net income reported by investee company shall be taken as revenue of investor.
And the dividend paid by investee company shall be taken as amount of investment realised.
Therefore,
Investment revenue for ABC corporation:
Net Income reported by Riley: 73,000
Multiply: % of share of investment purchased 38%
Investment revenue for ABC corporation: 27740
Answer is $27,740
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