Question

Rich, Inc. acquired 30% of Doane Corp.'s voting stock on January 1, 2012 for $600,000. During 2012, Doane earned $240,000 and paid dividends of $150,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2013, Doane earned $300,000 and paid dividends of $90,000 on April 1 and $90,000 on October 1. On July 1, 2013, Rich sold half of its stock in Doane for $396,000 cash. Before income taxes, what amount should Rich include in its 2012 income statement as a result of the investment? Question 24 options: $240,000. $150,000. $72,000. $45,000.

Answer 1

Answer:

= $72,000

Explanation:

During 2012, Doane earned $240,000. Rich, Inc has a 30% Interest in Doane Corp. So to calculate the amount Rich.Inc should report in the income statement we will calculate Rich, Inc. share in the amount earned by Doane.

Doane earned= $240,000

Rich's interest = 30%

$240,000 * 0.30 = $72,000

Before income taxes, the amount Rich Inc. should include in its 2012 income statement as a result of the investment is $72,000.