On January 1, 2019, Wildcat bought 3,000 common shares of McCormick for$30,000 cash. McCormick has 10,000 shares
Question:
On January 1, 2019, Wildcat bought 3,000 common shares of McCormick for$30,000 cash. McCormick has 10,000 shares outstanding. Wildcat accounts for these securities using the equity method. The share price of McCormick closed at $12 on December 31, 2019 and at $15 on December 31, 2020. Wildcat received $9,000 cash dividends from McCormick on April 1, 2019 and$6,000 cash dividends from McCormick on April 1, 2020. In addition, McCormick reported Net Income of $50,000 for the year ended December 31,2019 and Net Income of $40,000 for the year ended December 31, 2020. On January 1, 2020, Wildcat sold 500 shares of McCormick for $7,000. Assume that both companies close their books on December 31.
What is the impact of the above transactions on the Net Income reported by Wildcat for the year ending December 31, 2020? Assume that Wildcat does not pay any taxes. Include a negative sign if the impact is a decrease in income.
