Question

Green Corp. owns 30°10 of the outstanding common stock and 100°10 of the outstanding noncumulativenonvoting preferred stock of Axel Corp. In Year 1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations. What amount of dividend revenue should Green report in its income statement for the year ended December 31, Year1?a. $0b. $30,000 c. $60,000 d. $90,000

Answer 1

Answer:

c. $60,000

Explanation:

Provided information,

Green Corp owns 30% of the the common stock and 100% of preference share capital of Axel Corp.

Also, Green Corp is exercising significant influence on Axel Corp.

Thus, for accounting purpose Green Corp will use equity method as the investment is more than 20%.

Any dividend received from Axel Corp on common stock will be deducted from carrying value of investment in common stock, though dividend received on preference capital will increase the profits as will be added to income statement.

Thus, dividend recognized in Income Statement = $60,000 received on preference capital.

Correct answer is

c. $60,000