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Fair-Value Method: How much income should Gaw recognize on this investment in 2002?

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Gaw Company owns 15% of the common stock of Teal Corporation and used the fair-value method to account for this investment. Teal reported net income of $110,000 for 2002 and paid dividends of $60,000 on October 1, 2002. How much income should Gaw recognize on this investment in 2002?

A) $16,500

B) $ 9,000

C) $25,500

D) $ 7,500

E) $50,000

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The solution explains the fair-value method of accounting for investments. It includes brief calculations and the answer.

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Under the fair value method, only the dividends received are counted ...

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