ExpertMedium1 markMultiple Choice
CPA · Question 25 · Area II: Balance Sheet Accounts
Investor Co. owns 30% of Investee Co. and has significant influence. <br/>Jan 1 Investment Balance: $200,000<br/>Investee Net Income: $100,000<br/>Investee Dividends Paid: $40,000<br/><br/>What is the December 31 Investment Balance?
Investor Co. owns 30% of Investee Co. and has significant influence. <br/>Jan 1 Investment Balance: $200,000<br/>Investee Net Income: $100,000<br/>Investee Dividends Paid: $40,000<br/><br/>What is the December 31 Investment Balance?
Answer options:
A.
$260,000
B.
$218,000
C.
$230,000
D.
$200,000
How to approach this question
Equity Method Rollforward: Beg Balance + % Share of NI - % Share of Dividends = End Balance.
Full Answer
B.$218,000✓ Correct
B
Beg Balance: $200,000<br/>+ Share of Income: $100,000 * 30% = $30,000<br/>- Share of Dividends: $40,000 * 30% = ($12,000)<br/>End Balance: $218,000.
Common mistakes
Treating dividends as income; forgetting to apply the ownership percentage.
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