on January 1, Year 1, Red Crown, Inc. purchased 25% of Red Hand Co.\'s outstandi

Question

on January 1, Year 1, Red Crown, Inc. purchased 25% of Red Hand Co.'s outstanding common shares and 40% of Red Leaf Co.'s nonvoting preferred stock. Red Crown plans to hold the investments on a long-term basis. Red hand reported net income of $300,000 for Year 1 and paid common stock dividends of $100,000. Red Leaf reported net income of $450,000 and paid preferred dividends of $200,000. On its December 31, Year 1 income statement, what amount of income from these investments should Red Crown report?

a. $105,000 b. $155,000 c. $205,000 d. $255,000

Explanation / Answer

Answer :- Option a). $ 105,000.

Explanation :- Calculation of income from investment that the Red Crown will report in its books of accounts :-

= 100000 * 25 % + 200000 * 40 %

= 25000 + 80000

= $ 105,000. (Option a).

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