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During calendar 2017, Caraway Corp.reported net income of $60,000 and paid total cash dividends of $20,000.Seed Inc.owns 3,000 of the 10,000 outstanding shares of Caraway and exercises significant influence.
-What amount should Seed show in the investment account at December 31, 2017 if the beginning of the year balance in the account was $80,000?
A)$92,000
B)$98,000
C)$80,000
D)$120,000

Question

Quizplus · Accepted Answer

Seed Inc. owns 30% of Caraway Corp. (3,000/10,000 shares) and exercises significant influence, so it should use the equity method. The investment account is adjusted for Seed's share of Caraway's net income and dividends. Seed's share of net income is 30% of $60,000 = $18,000. Seed's share of dividends is 30% of $20,000 = $6,000. The investment account is increased by the net income share and decreased by the dividend share: $80,000 + $18,000 - $6,000 = $92,000.

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