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Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2018 and paid dividends of $60,000 on October 1, 2018. How much income should Gaw recognize on this investment in 2018?
- A) $16,500.
- B) $9,000.
- C) $25,500.
- D) $7,500.
- E) $50,000.
Answer: B
Learning Objective: 01-01
Topic: Investments―Fair-value method
Difficulty: 1 Easy
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Feedback: $60,000 × .15 = $9,000
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