Use the following information for questions 103 and 104.
Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $450,000 on January 2, 2015. During 2015, Darby Company declared dividends of $75,000 and reported earnings for the year of $300,000.
-If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Equity Investment (Darby) account at December 31, 2015 should be

Question

Quizplus · Accepted Answer

Under the equity method, Blanco Company would recognize its share of Darby's earnings and dividends. Blanco owns 20% of Darby (200/1000 shares). Thus, it would add 20% of Darby's earnings ($300,000 * 20% = $60,000) to the initial investment of $450,000 and subtract 20% of the dividends paid ($75,000 * 20% = $15,000). The Equity Investment account at year-end would be $450,000 + $60,000 - $15,000 = $495,000.

Use the Following Information for Questions 103 and 104