On January 1,2019,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.Palmer uses the equity method of accounting for this investment.During 2019,Arnold Corporation reported $30,000 of net income and paid a total of $10,000 in cash dividends.At the end of 2019,the shares had a fair value of $150,000.
-At the end of 2019,the shares had a fair value of $150,000.What is the amount of Equity in investee earnings for 2019?
A)$4,000.
B)$12,000.
C)$13,000.
D)$21,000.

Question

On January 1,2019,Palmer,Inc.bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000.Palmer uses the equity method of accounting for this investment.During 2019,Arnold Corporation reported $30,000 of net income and paid a total of $10,000 in cash dividends.At the end of 2019,the shares had a fair value of $150,000. 
-At the end of 2019,the shares had a fair value of $150,000.What is the amount of Equity in investee earnings for 2019?
A)$4,000.
B)$12,000.
C)$13,000.
D)$21,000.

Quizplus · Accepted Answer

Under the equity method, Palmer would recognize its share of Arnold's net income, not the dividends. Palmer owns 40% of Arnold, so its share of Arnold's net income is 40% of $30,000, which equals $12,000.