On December 31, 2017, Ryan Corp.acquired a 60% interest in Gosling Corp.for $315,000.During 2018, Gosling reported net income of $200,000 and paid total cash dividends of $50,000.Assuming Ryan uses the equity method, at December 31, 2018, the balance in the investment account should be
A)$465,000.
B)$435,000.
C)$405,000.
D)$315,000.

Question

Quizplus · Accepted Answer

Under the equity method, the investment account is adjusted for the investor's share of the investee's net income and dividends. Ryan's share of Gosling's net income is 60% of $200,000, which is $120,000. Ryan's share of the dividends is 60% of $50,000, which is $30,000. The investment account is increased by the net income share and decreased by the dividend share: $315,000 + $120,000 - $30,000 = $405,000.