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 2021, Ranger declared and paid a dividend of $60,000. There were no dividends in 2020. On December 31, 2020, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. What is the effect of this investment on the 2021 income statement

Answer 1

Answer:

The Total amount shown in income statement as income from this investment is $ 27,200.00

Explanation:

In order to calculate the effect of this investment on the 2021 income statement we would have to make the following calculation:

effect of this investment on the 2021 income statement= Dividend received by Howdy Doody corporation+Increase in Fair value of Stock credited to income statement

Dividend received by Howdy Doody corporation=$60,000 x 12%= $7,200.00

Increase in Fair value of Stock credited to income statement=$70,000-$50,000=$ 20,000.00

Therefore, effect of this investment on the 2021 income statement= $7,200.00 +$ 20,000.00 =$27,200

The Total amount shown in income statement as income from this investment is $ 27,200.00