On January 1,20X9 Pathlon Company acquired 30 percent of the common stock of Sopteron Corporation,at underlying book value.For the same year,Sopteron reported net income of $55,000,which includes a gain from discontinued operations of $40,000.It did not pay any dividends during the year.By what amount would Pathlon's investment in Sopteron Corporation increase for the year,if Pathlon used the equity method?
A)$0
B)$16,500
C)$4,500
D)$12,000

Question

Quizplus · Accepted Answer

Under the equity method, the investment is increased by the investor's share in the net income of the investee. In this case, Pathlon's share of Sopteron's net income is:

$55,000 x 30% = $16,500

Since Sopteron did not pay any dividends, there is no adjustment needed for dividends. Therefore, Pathlon's investment in Sopteron would increase by $16,500 for the year. The correct answer is B.

On January 1,20X9 Pathlon Company Acquired 30 Percent of the Common