On January 1, 2010, Mehan, Incorporated Purchased 15,000 Shares of Cook

question 16

Multiple Choice

On January 1, 2010, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2011 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2010, was $1,000,000. The book value of Cook on January 1, 2011, was $1,150,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over five years. Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: On April 1, 2012, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.
How much income did Mehan report from Cook during 2011?

• A) $90,000.
• B) $110,000.
• C) $67,500.
• D) $87,500.
• E) $78,750.

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