Question

On January 2, 2020, Howdy Doody Corporation purchased 17% of Ranger Corporation's common stock for $53,000. Ranger's net income for the years ended December 31, 2020, and December 31, 2021, were $17,000 and $54,000, respectively. During 2020, Ranger declared and paid a dividend of $63,000. On December 31, 2020, the fair value of the Ranger stock owned by Howdy Doody had increased to $68,000. How much should Howdy Doody show in the 2020 income statement as income from this investment

Answer 1

Answer:

$25,710

Explanation:

Calculation to determine How much should Howdy Doody show in the 2020 income statement as income from this investment

First step is to calculate the Dividend received

Dividend received=($63,000 × 17%)

Dividend received = $10,710

Second step is to calculate the Increase in Fair value of Stock

Increase in Fair value of Stock=($68,000 - $53,000)

Increase in Fair value of Stock=$15,000

Now let calculate the How much should Howdy Doody show in the 2020 income statement as income from this investment

2020 income statement=$10,710+$15,000

2020 income statement=$25,710

Therefore The amount that Howdy Doody should show in the 2020 income statement as income from this investment is $25,710