Question

Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011, for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge purchased an additional 25% of Gates for $200,000. Any excess cost over book value is attributable to goodwill with an indefinite life. The fair-value method was used during 2011 but Dodge has deemed it necessary to change to the equity method after the second purchase. The income reported by Dodge for 2011 with regard to the Gates investment was :
A$7,500
B$22,500
C$15,000
D$100,000

Answer 1

Answer:

$80,000

Explanation:

The computation of Gates investment is shown below:-

Total Acquisition = Acquisition in 2011 + Acquisition in 2012

= 15%+ 25%

= 40%

Income reported By Dodge = Investee Net Income × Percentage Share of Ownership

= $200,000 × 40%

= $80,000

Therefore for computing the income reported by Dodge we simply applied the above formula. The correct answer is $80,000 so according to the question the option is not available