On January 1, Boggs, Inc. paid $700,000 for 100,000 shares of Mattly Corporation representing 30% of Mattly's outstanding common stock. The following computation was made by Boggs.
Purchase price: $700,000
30% equity in book value of Mattly's net assets: $500,000 Excess cost over book value: $200,000
The excess cost over book value was attributed to goodwill. Mattly reported net income for the year ended December 31 of $300,000. Mattly Corporation had paid cash dividends of $100,000 on July 1.
If Boggs, Inc. exercised significant influence over Mattly Corporation and properly accounted for the long-term investment under the equity method, the amount of net investment revenue Boggs should report from its investment in Mattly would be:
- $60,000
- $30,000
- $80,000
- $90,000correct
why don't choose 60000 because
equity method the dividends is reduction of investment income.------------------------------
Hend Abdel-Gafar
Accountant
Cairo
Egypt
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