Question

On January 2, 2020, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000. Ranger's net income for the years ended December 31, 2020, and December 31, 2021, were $10,000 and $50,000, respectively. During 2020, Ranger declared and paid a dividend of $60,000. On December 31, 2020, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2021 income statement as income from this investment

Answer 1

Answer: $7200

Explanation:

From the question, we are informed that On January 2, 2020, Howdy Doody Corporation bought 12% of Ranger Corporation's common stock for $50,000.

We are further told that during 2020, Ranger declared and paid a dividend of $60,000 and that on December 31, 2020, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000.

The amount that Howdy Doody show in the 2021 income statement as income from this investment will be:

= $60,000 × 12%

= $60,000 × 0.12

= $7,200