On January 1, 2017, Gardner Corporation purchased 29% of the common stock outstanding of Lance Corporation for $300,000. During 2017, Lance Corporation reported net income of $80,000 and declared and paid cash dividends of $37,000. The balance of the Equity-method Investment account at December 31, 2017 is:

Question

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The correct answer is B. The balance of the Equity-method Investment account at December 31, 2017 is $312,470. This is calculated as follows:Beginning balance: $300,000Add: Share of net income (29% x $80,000): $23,200Less: Share of dividends (29% x $37,000): $10,770Ending balance: $312,470

On January 1, 2017, Gardner Corporation Purchased 29% of the Common