Exercise 17-13 Flint Co. invested $1,100,000 in Buffalo Co. for 25% of its outst

Question

Exercise 17-13 Flint Co. invested $1,100,000 in Buffalo Co. for 25% of its outstanding stock. Buffalo Co. pays out 40% of net income in dividends each year. Use the information in the following T-account for the investment in Buffalo to answer the following questions.

Investment in Buffalo Co.

Debits

1,100,000

114,000

Credits

45,600

(a) How much was Flint Co.’s share of Buffalo Co.’s net income for the year? Net income $ (b) What was Buffalo Co.’s total net income for the year? Total net income $ (c) What was Buffalo Co.’s total dividends for the year? Total Dividends $ (d) How much was Flint Co.’s share of Buffalo Co.’s dividends for the year? Dividends $

Explanation / Answer

a) Flint Co.’s share of Buffalo Co.’s net income for the year = 114000

b) Buffalo Co.’s total net income for the year = 114000*100/25 = 456000

c) Buffalo Co.’s total dividends for the year = 456000*40% = 182400

d) Flint Co.’s share of Buffalo Co.’s dividends for the year = 182400*25% = 45600

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