Question

Wood Co. owns 2,000 shares of Arlo, Inc.’s 20,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock and 1,000 shares (2%) of Arlo’s common stock. During Year 2, Arlo declared and paid dividends of $240,000 on preferred stock. No dividends had been declared or paid during Year 1. In addition, Wood received a 5% common stock dividend from Arlo when the quoted market price of Arlo’s common stock was $10 per share. What amount should Wood report as dividend income in its Year 2 income statement?$24,000
$24,500$24,550$25,000

Answer 1

Answer:

Dividend income of $24,000

Explanation:

Wood Co. owns 2000 out of the 20000 cumulative,non-participating preferred shares,which implies that out of all preferred dividends declared and paid by Arlo inc, Wood Co, get 2000/20000 of the dividends

Wood Co's dividends =2,000/20,000*$240,000

                                    =$24,000

The stock dividend of 5% of common stock is not to be recognized as dividend income but an increase in investment in Arlo Inc,a capital gains yield not dividend yield

Capital gains yield is the return from investment in form capital appreciation while dividend is a revenue return from investment