Dobson Inc.earns €450,000 and pays cash dividends of €150,000 during 2011.Cornwell Corporation owns 70,000 of the 210,000 outstanding shares of Dobson. What amount should Cornwell show in the investment account at December 31, 2011 if the beginning of the year balance in the account was €40,000?

Question

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Cornwell owns 1/3 of Dobson (70,000/210,000). Cornwell's share of Dobson's earnings is €150,000 (1/3 of €450,000), and its share of dividends is €50,000 (1/3 of €150,000). The investment account increases by the share of earnings and decreases by the share of dividends: €40,000 + €150,000 - €50,000 = €140,000.