Aroma Limited owns a 25% interest in the shares of Baltic Corporation.During the year, Baltic pays $10,000 in dividends to Aroma and reports $100,000 net income.Aroma's investment in Baltic will increase Aroma's net income by

A) $25,000.
B) $27,500.
C) $10,000.
D) $ 2,500.

Question

Gabriel Hernandez · Accepted Answer

Final Answer : A, Explanation :  Aroma Limited owns a 25% interest in Baltic Corporation, which means it should use the equity method to account for its investment. Under the equity method, Aroma's share of Baltic's net income is 25% of $100,000, which is $25,000. Dividends received do not affect net income under the equity method.

Aroma Limited owns a 25% interest in the shares of Baltic Corporation.During the year, Baltic pays $10,000 in dividends to Aroma and reports $100,000 net income.Aroma's investment in Baltic will increase Aroma's net income by

A) $25,000.
B) $27,500.
C) $10,000.
D) $ 2,500.

Definitions

Learning Objectives

Learning Objectives

Related questions

Aroma Limited owns a 25% interest in the shares of Baltic Corporation.During the year, Baltic pays $10,000 in dividends to Aroma and reports $100,000 net income.Aroma's investment in Baltic will increase Aroma's net income byA) $25,000.B) $27,500.C) $10,000.D) $ 2,500.

Definitions

Learning Objectives

Learning Objectives

Related questions

Aroma Limited owns a 25% interest in the shares of Baltic Corporation.During the year, Baltic pays $10,000 in dividends to Aroma and reports $100,000 net income.Aroma's investment in Baltic will increase Aroma's net income by

A) $25,000.
B) $27,500.
C) $10,000.
D) $ 2,500.