On January 2, Groneman Corporation acquired 30% of the outstanding ordinary shares of Coulson Company for $580,000. For the year ended December 31, Coulson reported net income of $90,000 and paid cash dividends of $30,000 on its shares. At December 31, the carrying value of Groneman's investment in Coulson under the equity method is

Question

Quizplus · Accepted Answer

Under the equity method, the carrying value of the investment is equal to the initial cost of the investment plus the investor's share of the investee's earnings (net income) and minus the investor's share of the investee's dividends.

Initial cost of investment = $580,000
Investor's share of Coulson's net income = 30% x $90,000 = $27,000
Investor's share of Coulson's dividends = 30% x $30,000 = $9,000

Carrying value of Groneman's investment in Coulson = $580,000 + $27,000 - $9,000 = $598,000. Therefore, the correct choice is D.

On January 2, Groneman Corporation Acquired 30% of the Outstanding