Investor Co. owns 30% of Investee Inc. and applies the equity method. In Year 1, Investee reported Net Income of $100,000 and paid dividends of $20,000. <br/><br/>The excess of purchase price over book value was attributed to a patent with a 10-year life. The amortization of this excess is $5,000 per year.<br/><br/>What amount should Investor Co. report as 'Equity in Earnings of Investee' for Year 1?

1. **Share of NI:** $100,000 * 30% = $30,000.<br/>2. **Amortization:** The problem states the amortization is $5,000 per year (Assuming this is the Investor's share? The text says 'The amortization... is $5,000'. Usually, total excess is given. If $5,000 is the total amortization, Investor takes 30%. If $5,000 is the amortization *of this excess*, it implies the expense. Let's assume $5,000 is the calculated amortization adjustment for the investor. If the text meant total patent amortization, it would say 'Investee has a patent...'. Let's assume $5,000 is the adjustment amount). <br/> *Self-Correction:* Usually, questions give the total excess. Let's assume the $5,000 is the specific adjustment. <br/> Equity Income = $30,000 - $5,000 = $25,000.<br/><br/> *Alternative interpretation:* If $5,000 is total patent amortization of Investee, Investor share is $1,500. Result $28,500. Not an option. So $5,000 is the adjustment.<br/><br/>3. **Dividends:** Ignored for Income Statement (they reduce the Investment asset).