Answer :
The total investment revenue that Company A will record in its 2020 income statement is $15,680 ($12,800 + $2,880).
Since Company A has a 32% ownership interest in Company B, it accounts for its investment in Company B using the equity method.
The initial investment by Company A was $384,000 to purchase 32% of Company B's common stock, which means that the total value of Company B was $1,200,000 on the date of acquisition ($384,000 / 0.32). Since the book value and fair value of Company B's net identifiable assets were both $550,000, there is no goodwill and the excess cost over book value is attributed entirely to Company B's unrecorded assets.
Thus, the amount attributed to the unrecorded assets is $650,000 ($1,200,000 - $550,000). Company A will use this as the basis for recording its investment in Company B.
For the year ended December 31, 2020, Company B had net income of $40,000. Therefore, Company A's share of Company B's net income is $12,800 ($40,000 x 0.32).
On November 4, 2020, Company B declared a dividend of $0.15 per share. Since Company A owns 32% of the outstanding shares (i.e., 19,200 shares), its share of the dividend is $2,880 ($0.15 x 19,200 x 0.32).
Therefore, the total investment revenue that Company A will record in its 2020 income statement is $15,680 ($12,800 + $2,880).
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