Correct Answer: D

Explanation: The first $2,400 of unemployment benefits are excluded from income. His gross income includes:

Current adjusted gross income: 22,500
Add: taxable unemployment benefits: 400
New adjusted gross income: $22,900

Today's question (a day late!): FAR

On July 1, Year 3, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share. On December 15, Year 3, Eagle paid $40,000 in dividends to its common stockholders. Eagle's net income for the year ended December 31, Year 3, was $120,000, earned evenly throughout the year. In its Year 3 income statement, what amount of income from this investment should Denver report?

A)   $36,000

B)   $18,000

C)   $12,000

D)   $6,000

I chose "C" because of the wording of the problem.  It said that Denver purchased 3000 of Eagle's 10000 o/s shares, which makes me believe that their was already 10000 shares when denver purchased them (like maybe already purchasing from another investor?). 

When I attempted to do a weighted avg of shares (10000 for 1/2 of the year and 7000 for the other half) I couldn't get a round number that fit any of the choices, thereby my answer...

Correct Answer: B

Explanation: Denver Corp. acquired 30% of Eagle Company's outstanding common stock. With no evidence to the contrary, an investment of 20% or more is assumed to give significant influence, and would be accounted for using the equity method. Under the equity method the investor recognizes in income its share of the investee's net income or loss subsequent to the date of acquisition. Investment income = $120,000 x 30% x 1/2 year = $18,000.