Parent Co. invested $1,135,000 in Sub Co. for 25% of its outstanding stock. Sub

Question

Parent Co. invested $1,135,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 45% of net income in dividends each year. Use the information in the following T-account for the investment in Sub to answer the following questions. Investment in Sub Co. 1,135,000 147,600 66,420

(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?

Net income $

(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?

Dividends $

(c) What was Sub Co.’s total net income for the year?

Total net income $

(d) What was Sub Co.’s total dividends for the year?

Total Dividends $

Explanation / Answer

a)a)Net Income = 147600

b) Dividend = $ 66,420

c)Total net Income = 147600 / .25

                           = $ 590,400

d)Total dividend = 590,400 *45 =$ 265,680

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