For Year 6:
• No effect on sales.
• Net income effect equals the dividend income of $10 (1% of $1,000, or $1 per
share) since the investment is accounted for under the market method. Also,
assuming the shares are classified as available-for-sale (a reasonable assumption
given subsequent purchases), the price appreciation of $1 per share will by pass
the income statement.
• Cash flow effect equals the dividend income of $10. If the outflow due to the stock
purchase is included: Net cash flow = dividend income less purchase price = $10 -
$100 = $(90).