Eagle Exporters purchased 80,000 of the 200,000 outstanding shares of Giant Distributors for $3,000,000. Eagle has significant influence over Giant and will account for this investment using the equity method. During the year, Giant declared dividends of $100,000 and reported Net Income of $780,000. What is the balance in the Investment in Giant account at year end?

Question

Quizplus · Accepted Answer

Eagle Exporters owns 40% of Giant Distributors (80,000/200,000). Under the equity method, Eagle records its share of Giant's net income and dividends. Eagle's share of net income is 40% of $780,000, which is $312,000. Eagle's share of dividends is 40% of $100,000, which is $40,000. The investment account increases by the share of net income and decreases by the share of dividends. Therefore, the year-end balance is $3,000,000 + $312,000 - $40,000 = $3,272,000.

Eagle Exporters Purchased 80,000 of the 200,000 Outstanding Shares of Giant