Company X owns 15 percent of company S and exerts significant control over the operations of the company. The book value of the investment on December 31, 2001, is $48,000. In 2002, company S earned $100,000 and paid dividends of $20,000. The impact of the investment on the income statement of company X is: A) $3,000. B) $12,000. C) $15,000. D) $0. -------------------------------------------------------------------------------- Click for Answer and Explanation Because company X exerts significant control over company S, the investment will be treated using the equity method, even though the ownership is less than the 20 percent guideline. The impact on the income statement is the proportionate income of company S, which is 0.15 × 100,000 = 15,000.
This is Equity method and they are talking about Income statement. So C is correct: 0.15*100K = 15K If they were talking about Balance Sheet, then it would have been 48K + 15K - 3K = 60K