Dover Corporation owns 18 percent of the voting stock of Hassan, Inc. The remainder of the Hassan stock is held by numerous investors with small holdings. Monica Kurtz, president of Dover and a member of Hassan's board of directors, heavily influences Hassan's policies. Under the market value method of accounting for investments, Dover's net income increasing as it receives dividends from Hassan. Dover pays President Kurtz a bonus computed as a percentage of Dover's net income. Therefore, Kurtz can control her personal bonus to a certain extent by influencing Hassan's dividends. A recession occurs in 20X0, and corporate income is low. Kurtz uses her power to have Hassan, Inc., pay a large cash dividend. The action requires Hassan to borrow so heavily that it may lead to financial difficulty. Required: In getting Hassan to pay the large cash dividend, is Kurtz acting within her authority as a member of the Hassan board of directors? Are Kurtz's actions ethical? Whom can her actions harm?

Dover Corporation owns 18 percent of the voting stock of Hassan, Inc. The remainder of the Hassan stock is held by numerous investors with small holdings. Monica Kurtz, president of Dover and a member of Hassan's board of directors, heavily influences Hassan's policies. Under the market value method of accounting for investments, Dover's net income increasing as it receives dividends from Hassan. Dover pays President Kurtz a bonus computed as a percentage of Dover's net income. Therefore, Kurtz can control her personal bonus to a certain extent by influencing Hassan's dividends. A recession occurs in 20X0, and corporate income is low. Kurtz uses her power to have Hassan, Inc., pay a large cash dividend. The action requires Hassan to borrow so heavily that it may lead to financial difficulty. Required: In getting Hassan to pay the large cash dividend, is Kurtz acting within her authority as a member of the Hassan board of directors? Are Kurtz's actions ethical? Whom can her actions harm?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter13: Corporations: Earning & Profits And Distributions

Section: Chapter Questions

Problem 31P

See similar textbooks

Similar questions

On March 1, 2018, Rawlins Company invests $25,000 in Ashton Company stock. Ashton pays Rawlins a $800 dividend on September 30, 2018. Rawlins sells the Ashton stock on November 30, 2018 for $23,500. Assume the investment is categorized as a short-term equity investment and that Rawlins does not have significant influence over Ashton. Requirements: 1. Journalize the transactions for Rawlins' investment in Ashton's stock.
Carleton Corporation distributes investment securities to each of its individual shareholders. The total basis of these securities is $60,000 and the total fair market value of them is $90,000. However, these securities were used as collateral for a loan to the corporation and $30,000 of that loan still encumbers the securities and is assumed by the shareholders. How much is the dividend income to the shareholders?
Thomas C. Company holds a 15% equity investment in Kayak Zone and treats it as a passive investment. Fred W. Company holds 30% of Kayak Zone's stock and has a significant influence over Kayak. On November 1, 2019, Kayak Zone declares and pays dividends to its stockholders. (Answer as Increase, Decrease or No effect.) 1. How will the dividend affect Thomas C. Company's investment account? 2. How will the dividend affect Fred W. Company's investment account?
Thomas C. Company holds a 15% equity investment in Kayak Zone and treats it as a passive investment. Fred W. Company holds 30% of Kayak Zone's stock and has a significant influence over Kayak. On November 1, 2019, Kayak Zone declares and pays dividends to its stockholders. How will the dividend affect each company's investment account? Select one: A. Thomas C. Fred W. Decrease No effect B. Thomas C. Fred W. No effect No effect C. Thomas C. Fred W. No effect Decrease D. Thomas C. Fred W. Decrease Decrease
SCENARIO: AMO Limited purchases shares of BEMI Limited by investing 1,000,000.00 ZMW. The dividend received on these shares reflects in the profit and loss account of the company. Further, the workers of the company receive an annual bonus and the dividend amount is taken into account in calculating the overall bonus figure.A few years later, AMO Limited transfers the shares of BEMI Limited to CUMI Limited, which is a wholly owned subsidiary of AMOLimited. Post transferring of the shares, the dividends do not reflect in the accounts of AMO Limited. This leads to a reduction in the overall bonus amount figure. Is AMO Limited legally allowed to do so? Which legal theory needs to be mentioned here?
On March 1, 2024, Garden Company invests $13,000 in Firs, Inc. stock. Firs pays Garden a $200 dividend on August 1, 2024. Garden sells the Firs' stock on August 31, 2024, for $13,350. Assume the investment is categorized as a short-term equity investment and Garden Company does not have significant influence over Firs, Inc 1. Journalize the transactions for Garden's investment in Firs' stock. 2. What was the net effect of the investment on Garden's net income for the year ended December 31, 2024
Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,650 and $165,150 at December 31, 2020, and December 31, 2021, respectively. During 2021 Clor recognized $75,250 of net income and paid dividends of $20,150. Assuming that Bloomfield owned the same percentage of Clor throughout 2021, its percentage ownership must have been: (Round your answer to the nearest whole percent): Multiple Choice 19%. 26%. 24%. 72%.
ABC Inc. holds 17% of the common shares of XYZ Ltd. ABC is able to appoint three members of XYZ’s 12-member Board of Directors. ABC is also a supplier of raw materials to XYZ. XYZ is a private company and the remaining 83% of XYZ’s common shares are widely held. Assume that ABC reports under ASPE, what are the reporting options for its investment in XYZ? A. Equity method B. Equity method or costC. Equity method, cost, or consolidation D. Fair value through profit or loss (FVTPL) or cost.
ABC Corporation has an investment of 4,000,000 shares in XYZ Corporation. On December 31, 2021, ABC distributes, to its shareholders, the shares of XYZ in the form of a dividend. This distribution is an example of a dividend: a. in stock (stock dividend). b. owned (property dividend). c. in liquidation (liquidating dividend).
Eduardo, a large entity, owns 50% and 20% of Letecia Corporation’s ordinary and preference shares, respectively. Letecia’s shares outstanding at December 31, 2021 follow: Ordinary share, P5,000,000 10% non-cumulative preference share, P1,200,000 Letecia reported net income of P750,000 for the year ended December 31, 2021. What amount should Eduardo report as total revenue related to its investment in Letecia Company for the year ended December 31, 2021?