Kross company purchases an equity investment in Penno Company at a purchase price of 5,000,000 millions, representing 34% of the outstanding stock and book value of Penno. During the year, Penno reports net income of 600,000 and pays cash dividends of 200,000. At the end of the year, the market value of Kross's investment is 5,300,000. What amount of income does Kross report relating to this investment in Penno for the year?

Kross company purchases an equity investment in Penno Company at a purchase price of 5,000,000 millions, representing 34% of the outstanding stock and book value of Penno. During the year, Penno reports net income of 600,000 and pays cash dividends of 200,000. At the end of the year, the market value of Kross's investment is 5,300,000. What amount of income does Kross report relating to this investment in Penno for the year?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 11MCQ

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Kross Company purchases an equity investment in Penno Company at a purchase price of $2.5 million, representing 40% of the book value of Penno. During the current year, Penno reports net income of $300,000 and pays cash dividends of $100,000. At the end of the year, the fair value of Kross’s invest- ment is $2.65 million. What amount of income does Kross report relating to this investment in Penno for the year? Explain.
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At the beginning of the year, the Sean Brewery purchased a 25 percent ownership interest in Mark Pub. The investment cost $12 million. At year-end, Mark Pub declared and paid cash dividends to shareholders totaling $320,000, after reporting earnings of $2.0 million. Calculate the book value of Sean’s equity investment in Mark Pub at year-end assuming that Sean Brewery reported a loss of $1.2 million instead of a profit of $2.0 million and still paid its dividend of $320,000.
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