Turner Company owns 10 of the outstanding stock of ICA Compa

Turner Company owns 10% of the outstanding stock of ICA Company. During the current year, ICA paid a $6.00 million cash dividend on its common shares. What pretax effect did this dividend have on Turner\'s 2016 financial statements? (Amounts to be deducted should be indicated with a minus sign.)

Solution

Since turner company is holding only 10% of stock, it is assumed that it is not having significant influence onver ICA.

And investment is accounted under cost method.

Hence dividend income is recorded for the 10% share of 6 million dividends declared by ICA which equals = 600,000.

Turner income statemnt will include dividend income of 600,000.

Under balance sheet cash received will be included in current assets cash, retained earnings will be higher by this amount.