XYZ buys a 24% share in ABC for $80m.ABC's total net profit is $50m and it pays $4m in dividends to XYZ.Using the equity method,the value of the investment in ABC would be recorded at year-end as:
A) $80m
B) $88m
C) $92m
D) $19m.

Question

Quizplus · Accepted Answer

Using the equity method, the initial investment of $80m is increased by the share of ABC's net profit and decreased by the dividends received.

Share of ABC's net profit = 24% x $50m = $12m 
Decrease due to dividends received = $4m

Therefore, value of the investment at year-end = $80m + $12m - $4m = $88m.

XYZ Buys a 24% Share in ABC for $80m