Question

# A company (the investor) purchased 40,000 shares of common stock of the investee for \$40 per...

A company (the investor) purchased 40,000 shares of common stock of the investee for \$40 per share on January 2, 2020. The investee had 100,000 shares of common stock outstanding during 2021, paid cash dividends of \$62,000 during 2021, and reported net income of \$330,000 for 2021. The investor company should report revenue from investment for 2021 in the amount of....

Total shares of Investee Company = 100,000

Number of shares acquired of Investee Company = 40,000

Percentage of shares acquired of Investee Company = Number of shares acquired of Investee Compan/Total shares of Investee Company

= 40,000/100,000

= 40%

Revenue from investment in Investee Company = Net income of Investee Company x Percentage of common stock acquired

= 330,000 x 40%

= \$132,000

The investor company should report revenue from investment for 2021 in the amount of = \$132,000

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