Heartfelt Company Owns a 40% Interest in the Voting Common

question 115

Multiple Choice

Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, and Heartfelt accounts for the investment using the equity method. During 2016, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2016. How much investment income should Heartfelt report during 2016 from the Candle investment?

• A)$36,000.
• B)$40,000.
• C)$4,000.
• D)$10,000.

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Definitions:

Synapses

The junctions between neurons through which electrical or chemical signals are transmitted.

Basement Membrane

A thin, dense layer of extracellular matrix that separates epithelial and endothelial cells from the underlying connective tissue.

Tendons

Strong connective tissue that connects muscles to bones, transferring the force of muscle contractions to facilitate movement.

Ligaments

Tough, fibrous tissues that connect bones to other bones, providing stability and support in joints.