Reference no: EM132877536

Question - Faye Co. owned 20% of Pen Inc.'s preference share capital and 50% of the ordinary share capital. Pen Inc.'s share capital outstanding comprised the following at year-end:

10% cumulative preference share capital - 2,000,000

Ordinary share capital - 7,000,000

Pen Inc. reported net income of $5,000,000 for the current year.

1. How much should be recorded as investment income for the current year assuming that the preference share capital of Pen Inc. are non-cumulative and that Pen Inc. paid $1,000,000 cash dividends for the current year?

2. Assuming that the preference share capital of Pen Inc. are non-cumulative and that Pen Inc. paid $1,000,000 cash dividends for the current year. What amount should be the balance of Investment in Pen Inc. at the end of the end of the current year?