Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, accounted for using the equity method. During 20X4, Candle Corporation reported net earnings of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 20X4.
-How much income should Heartfelt report during 20X4 from the Candle investment?
A) $200,000.
B) $40,000.
C) $4,000.
D) $10,000.

Question

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, accounted for using the equity method. During 20X4, Candle Corporation reported net earnings of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 20X4. 
-How much income should Heartfelt report during 20X4 from the Candle investment?
A) $200,000.
B) $40,000.
C) $4,000.
D) $10,000.

Quizplus · Accepted Answer

Calculation: Investment income ($40,000) = Investee net income ($100,000) × Ownership percentage (40%)

Heartfelt Company Owns a 40% Interest in the Voting Common