Parent Co. invested $1,037,000 in Sub Co. for 25% of its outstanding stock. Sub
ID: 2499637 • Letter: P
Question
Parent Co. invested $1,037,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 45% of net income in dividends each year.
Use the information in the following T-account for the investment in Sub to answer the following questions.
Investment in Sub Co.
(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?
(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?
(c) What was Sub Co.’s total net income for the year?
(d) What was Sub Co.’s total dividends for the year?
Investment in Sub Co.
1,037,000 142,000 63,900Explanation / Answer
a) Investment in Sub. Co. debit $ 142000
Share of net income credit $ 142000
b) Cash debit $ 63900
Investment in Sub Co. credit $ 63900
c) Total net income = 142000 *100/25 = $568000
d) Total dividend = $ 63900 * 100/25 = $ 255600
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