Question

Crane, Inc. acquired 30% of Novak Corporation's voting stock on January 1, 2021 for $1110000. During 2021, Novak earned $433000 and paid dividends of $272000. Crane's 30% interest in Novak gives Crane the ability to exercise significant influence over Novak's operating and financial policies. During 2022, Novak earned $533000 and paid cash dividends of $172000 on April 1 and $172000 on October 1. On July 1, 2022, Crane sold half of its stock in Novak for $693000 cash. Before income taxes, what amount should Oriole include in its 2021 income statement as a result of the investment?

Answer 1

Answer:

Amount to be included is Dividend income = $81,600

Explanation:

Dividend income = $272,000 * 30% =81,600

The only Investment amount to be include in the income statement is the dividend received (returns)  

Answer 2

Answer:

Crane gain on Novak investment for 2021: $ 159,900

Explanation:

As Crane has significant influence it will use the equity-method to evaluate their investment in Novak rather than just recognize dividends as gains.

Novak earned 533,000 for the year ended December 31h, 2021 Hence Crane recognize 30% of this as gains:

$ 533,000 x 30% = $ 159,900

The dividend wil be consider a transfer of cash between the same entity as Crane trasnfer 30% of the cash of Novak into their