Clocktower Corporation reported net income for the current year of $370,000 and paid cash dividends of $50,000.Slide Company holds 40 percent of the outstanding voting stock of Clocktower.However,another corporation holds the other 60 percent ownership and does not take Slide's wants and wishes into consideration when making financing and operating decisions for Clocktower.What investment income should Slide recognize for the current year?
A) $0
B) $20,000
C) $128,000
D) $148,000

Question

Quizplus · Accepted Answer

Slide Company owns 40% of the outstanding voting stock of Clocktower Corporation. Thus, Slide's share in the net income of Clocktower is 40% x $370,000 = $148,000. However, Slide only recognizes its investment income based on the dividends paid by Clocktower, which is only $50,000. Therefore, Slide's investment income for the current year is $50,000 x 40% = $20,000.

Clocktower Corporation Reported Net Income for the Current Year of $370,000