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CPA 2015.0 – FAR

Equity Method Investments (Investments in Associates), Question # 1663

Bort Co. purchased 2,000 shares of Crel Co. common stock on March 5, Year 1, for $72,000. Bort received a $1,000 cash dividend on the Crel stock on July 15, Year 1. Crel declared a 10% stock dividend on December 15, Year 1, to stockholders of record as of December 31, Year 1. The dividend was distributed on January 15, Year 2. The market price of the stock was $38 on December 15, Year 1, $40 on Decem­ber 31, Year 1, and $42 on January 15, Year 2. What amount should Bort record as dividend revenue for the year ended December 31, Year 1?

A.

$1,000

Incorrect B.

$8,600

C.

$9,000

D.

$9,400

You answered B. The correct answer is A.

Under the cost method, an investor reports only dividends received as revenue. Only $1,000 has been received in Year 1.