Question

Exercise 17-13

Partially correct answer. Your answer is partially correct. Try again.

Coronado Co. invested $1,100,000 in Whispering Co. for 25% of its outstanding stock. Whispering Co. pays out 30% of net income in dividends each year.

Use the information in the following T-account for the investment in Whispering to answer the following questions.

Investment in Whispering Co.

1,100,000

108,000

32,400

(a) How much was Coronado Co.’s share of Whispering Co.’s net income for the year?

Net income $ enter Coronado’s net income in dollarsEntry field with correct answer

(b) What was Whispering Co.’s total net income for the year?

Total net income $enter the total net income of WhisperingCo. for the yearEntry field with incorrect answer

(c) What was Whispering Co.’s total dividends for the year?

Total Dividends $enter the total dividends of WhisperingCo. for the yearEntry field with incorrect answer

(d) How much was Coronado Co.’s share of Whispering Co.’s dividends for the year?

Dividends $enter the dollar amount of dividends for Coronado Co.Entry field with correct answer

Answer 1

(a)       $108,000, the increase to the Investment account

(b)       If the dividend payout ratio is 30%, then 30% of the net income is their share of dividends = $32400

(c)        Their share is 25%, so, Total Net Income X 25% = $108,000

            Total Net Income = $108,000 ÷ 25% = $432000

(d)       $43,200 ÷ 25% = $172,800 or $432,000 X 30% = $129,600

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