Pacer Company purchased 300 of the 1,000 outstanding shares of Queen Company's common stock for $80,000 on January 2,2016.During 2017,Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000. If Pacer Company uses the equity method of accounting for its investment in Queen Company,its Investment in Queen Company account at December 31,2017 should be

Question

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The equity method of accounting requires that the investment account be adjusted annually for the investor's share of the income or loss of the investee, and also for dividends received.

In this case, Pacer purchased 300 out of 1,000 outstanding shares of Queen for $80,000, which means that Pacer owns 30% of Queen Company.

For the year 2017, Queen declared dividends of $8,000, and Pacer would record its share of $2,400 ($8,000 x 30%).

Also, Pacer's share of Queen's earnings for 2017 would be $6,000 ($20,000 x 30%).

Therefore, the Investment in Queen Company account at December 31, 2017 should be $83,600 ($80,000 + $6,000 - $2,400). Therefore, the correct answer is C).

Pacer Company Purchased 300 of the 1,000 Outstanding Shares of Queen