E17-13 - $ 520,000(d What was Demo Co's total dividends for...

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E17-13 (Equity Method) Gator Co. invested $1,000,000 in Demo Co. for  25% of its outstanding stock. Demo Co. pays  out 40% of net income in dividends each year. Use the information in the following T-account  for the investment in Demo to answer the  following questions.   Investment in Demo Co.   1,000,000     130,000       (a) How much was Gator Co.'s share of Demo Co.'s net income for the year?       $ 130,000 (b) How much was Gator Co.'s share of Demo Co.'s dividends for the year?       $ 52,000 (c) What was Demo Co.'s total net income for the year?
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Unformatted text preview: $ 520,000 (d) What was Demo Co.'s total dividends for the year? $ 208,000 Solution E17-13 (a) $130,000 , the increase to the investment account. (b) If the dividend payout ratio is 40%, then 40% of the net income is their share of dividends = $52,000. (c) Their share is 25%, so, Total Net Income × 25% = $130,000 Total Net Income = $130,000 ÷ 25% = $520,000 (d) $52,000 ÷ 25% = $208,000 or $520,000 × 40% = $208,000...
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