Mandrake Corp owns a 10% interest in the common shares of Cobra Ltd. During this year, Cobra pays a total of $15,000 in dividends and reports $130,000 profit. Mandrake's investment in Cobra will increase Mandrake's profit by
A)$15,000.
B)$13,000.
C)$12,500.
D)$ 1,500.

Question

Quizplus · Accepted Answer

Mandrake Corp owns only a 10% interest in Cobra Ltd, which means it will receive 10% of the dividends paid. Therefore, Mandrake will receive 10% of $15,000, which is $1,500. The profit reported by Cobra does not directly affect Mandrake's profit unless Mandrake uses the equity method, which is not applicable here due to the small ownership percentage.

Mandrake Corp Owns a 10% Interest in the Common Shares