Indigo Co. invested $910,000 in Sweet Co. for 25% of its outstanding stock. Swee
ID: 342142 • Letter: I
Question
Indigo Co. invested $910,000 in Sweet Co. for 25% of its outstanding stock. Sweet Co. pays out 30% of net income in dividends each year.
Use the information in the following T-account for the investment in Sweet to answer the following questions.
Investment in Sweet Co.
(a) How much was Indigo Co.’s share of Sweet Co.’s net income for the year?
(b) What was Sweet Co.’s total net income for the year?
(c) What was Sweet Co.’s total dividends for the year?
(d) How much was Indigo Co.’s share of Sweet Co.’s dividends for the year?
Investment in Sweet Co.
910,000 106,000 31,800Explanation / Answer
Solution a:
Indigo Co.’s share of Sweet Co.’s net income = $106,000
Solution b:
Sweet Co.’s total net income = $106,000 / 25% = $424,000
Solution c:
Sweet Co.’s total dividends = Net Income * 30% = $424,000*30% = $127,200
Solution d:
Indigo Co.’s share of Sweet Co.’s dividends = $127,200*25% = $31,800