Holmes, Inc. obtained significant influence over Nadal Corporation by buying 35%

Question

Holmes, Inc. obtained significant influence over Nadal Corporation by buying 35% of Nadal's 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2018. On June 15, Nadal declared and paid a cash dividend of $36,000. On December 31, Nadal reported a net income of $85,000 for the year. In Holmes’s 2018 journal entries to record interest, Holmes would record a credit to interest revenue of:

$ 12,600.

$ 29,750.

$ 36,000.

$ 94,500.

(This is all the information the question gives.)

$ 12,600.

$ 29,750.

$ 36,000.

$ 94,500.

Explanation / Answer

The Net income reported by Nadal on December 31st 2018 was $85000

The interest held by Holmes inc is 35%

In order to credit the interest in revenue, the amount will be $85000*35%

= $29750

Option B is correct.

Entry being,

Equity Investments(Nadal Inc.) $29750

Revenue from Investment $29750

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.