Foster, Inc. acquired 40% of Cross Co.'s voting stock for $600,000 on January 2, Year 1. Fosters 40% interest in Cross gave Foster the ability to exercise significant influence over Cross's operating and financial policies. During Year 1, Cross earned $160,000 and paid dividends of $80,000. Cross reported earnings of $90,000 for the six months ended June 30, Year 2, and $55,000 for the year ended December 31, Year 2. On July 1, Year 2, Foster sold half of its stock in Cross for $420,000 cash. Cross paid dividends of $50,000 on October 1, Year 2.

Before income taxes, what amount should Foster include in its Year 1 income statement as a result of the investment?

• A.

  $64,000

• B.

  $32,000

• C.

  $36,000

• D.

  $160,000