Dodge, Incorporated Acquires 15% of Gates Corporation on January 1

question 7

Multiple Choice

Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2013, for $105,000 when the book value of Gates was $600,000. During 2013 Gates reported net income of $150,000 and paid dividends of $50,000. On January 1, 2014, Dodge purchased an additional 25% of Gates for $200,000. Any excess cost over book value is attributable to goodwill with an indefinite life. The fair-value method was used during 2013 but Dodge has deemed it necessary to change to the equity method after the second purchase. During 2014 Gates reported net income of $200,000 and reported dividends of $75,000.
The income reported by Dodge for 2013 with regard to the Gates investment is

• A) $7,500.
• B) $22,500.
• C) $15,000.
• D) $100,000.
• E) $150,000.

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Definitions:

Import Licensing

A governmental procedure requiring a permit or license to be obtained before goods can be imported into a country, often used to control the volume of imports.

Investment Securities

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Shares of companies that are based outside of an investor's own country, offering a way to gain exposure to international markets and diversify investment portfolios.

Lower Labor Standards

The degradation or reduction of labor standards concerning wages, working conditions, and employees' rights.