If Nolte Company acquired a 20% interest in Boswell Company on December 31, 2011 for $45,000 and during 2012 Boswell Company had net income of $25,000 and paid a cash dividend of $10,000, applying the equity method would give a debit balance in the Investment in Boswell Company account at the end of 2012 of

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Under the equity method, the investment is initially recorded at cost. Nolte's share of Boswell's net income increases the investment account, while dividends received decrease it. Initial investment: $45,000 + (20% of $25,000 net income) - (20% of $10,000 dividends) = $45,000 + $5,000 - $2,000 = $48,000.

If Nolte Company Acquired a 20% Interest in Boswell Company