Q12E_3 - Horngren'S Financial And Managerial Accounting

Question

Accounting for equity investments

Strategic Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon’s voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future. 

Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock. 

Dec. 31 Adjusted the investment to its current market value of \(45 per share. 

        31 Phyflexon reported net income of \)330,000 for the year ended 2018.

Requirements 

Prepare a partial income statement for Strategic Investments for year ended December 31, 2018.

Step-by-Step Solution

Answer

The partial net income is $3,808.

Step 1: Definition of Dividend Revenue

The revenue generated through investment in the company’s shares is known as dividend revenue. Such revenue is generated when the investee company distributes a portion of the profit to the investors.

Step 2: Partial income statement

Particular	Amount $
Dividend revenue	192
Less: Unrealized holding loss	($4,000)
Net income	$3,808