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GNR Inc owns 100% of NMX Inc.During the year,NMX Inc earned a net income of $40,000 and paid Dividends of $10,000.
-Assuming that GNR owned 80% of NXR instead of 100%,what would be the effect on GNR's investment in NMX account under the Equity Method?
A)An increase of $30,000.
B)An increase of $40,000.
C)An increase of $24,000.
D)No effect.

Question

The following information pertains to questions 
GNR Inc owns 100% of NMX Inc.During the year,NMX Inc earned a net income of $40,000 and paid Dividends of $10,000.
-Assuming that GNR owned 80% of NXR instead of 100%,what would be the effect on GNR's investment in NMX account under the Equity Method?
A)An increase of $30,000.
B)An increase of $40,000.
C)An increase of $24,000.
D)No effect.

Quizplus · Accepted Answer

Under the equity method, GNR records its share of NMX's net income and dividends paid. If GNR owned 80% of NMX, its share of net income would be 80% x $40,000 = $32,000. However, its share of dividends paid would still be 80% x $10,000 = $8,000. Therefore, the increase in GNR's investment in NMX account would be $32,000 - $8,000 = $24,000.

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