1119 Owl Co buys 95000 common shares of Fox Co at 23 per sha

1/1/19 Owl Co. buys 95,000 common shares of Fox Co. at $23 per share, On representing 20% of Fox\'s voting stock. At 12/31/19 Fox declares & pays $175,000 of cash dividends to all common shareholders on net income of $850,000, when Fox stock is selling at $25. What\'s would be the difference in Owl\'s 2019 net incomes based on Owl having or not having significant influence? O $135,000 $70,000 $170,000 $35,000 $105,000

Solution

Q1) Answer : $135000 As the holding is 20% of all voting rights, so it is treated a Equity investment and 20% of company net income is added to investment account and 20% of dividend paid should be deducted from investment account. So, net effect on Owl net income = 850000*20% - 175000*20% = $135000 Q30) Answer : YES & YES 1.The closing market value, being fair value, of the investee\'s cs will down-value or up-value of investment. 2.The cash dividend from investee will also increase the investment income.