Question

Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, 2015.Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During 2015, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, 2016, and $200,000 for the year ended December 31, 2016. On July 1, 2016, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, 2016.Before income taxes, what amount should Grant include in its 2015 Income Statement as a result of the investment?

Answer 1

Answer:

$24,000 Investment income.

Explanation:

$24,000 Investment income.

Grant limited has ability to exercise significant influence over South's operating and financial policies,

it means equity method should be applied

As per equity method

Income =30% x $80,000 =$24,000

Answer 2

Answer: $24,000

Explanation:

GIVEN the following:

Grant acquisition in 2015:

30% of South voting stock.

In 2015, South earned $80,000,dividend.

In other to calculate Grant's 2015 income statement, only earnings and transactions from the year 2015 are relevant to the question asked.

Since Grant purchased 30% of South, then 30% of South 'states dividend will be allocated to Grantm

30% of $80,000

0.3 × 8000

= $24,000