Confused on a Becker FAR Q.
Information pertaining to dividends from Wray Corp.'s common stock investments for the year ended December 31, Year 1, follows:
On September 8, Year 1, Wray received a $50,000 cash dividend from Seco, Inc., in which Wray owns a 30% interest. A majority of Wray's directors are also directors of Seco.
On October 15, Year 1, Wray received a $6,000 liquidating dividend from King Co. Wray owns a 5% interest in King Co.
Wray owns a 2% interest in Bow Corp., which declared a $200,000 cash dividend on November 27, Year 1, to stockholders of record on December 15, Year 1, payable on January 5, Year 2.
What amount should Wray report as dividend income in its income statement for the year ended December 31, Year 1?
A) 56,000
B)60,000
C) 4,000
D) 10,000
*C is correct
I am confused because I thought Liquidating Dividends were recorded by the cost method as follows:
DR: Cash xx (B/S)
CR: Investment xx (B/S)
CR: Div Income xx (I/S)
I understand the 1st investment is an Equity Method and the next 2 are cost method. So I can see why $4,000 is considered dividend income (declared within yr 1) but I would have thought the $6,000 would have been reported as well on the I/S.
Is there a rule I am missing?
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