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Fossil Company purchased 200 of the 1,000 outstanding shares of Ericksen Company's common shares for $60,000 on January 2, 2011.During 2011, Ericksen Company declared dividends of
$10,000 and reported earnings for the year of $40,000.
-If Fossil Company uses the equity method of accounting for its investment in Ericksen Company, its Investment in Ericksen Company account at December 31, 2011 should be

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Fossil Company purchased 200 of the 1,000 outstanding shares of Ericksen Company's common shares for $60,000 on January 2, 2011.During 2011, Ericksen Company declared dividends of
$10,000 and reported earnings for the year of $40,000.
-If Fossil Company uses the equity method of accounting for its investment in Ericksen Company, its Investment in Ericksen Company account at December 31, 2011 should be

Quizplus · Accepted Answer

Under the equity method, the investor records its share of the investee's earnings and dividends as increases or decreases to the investment account.

- Fossil Company owns 200 out of 1,000 outstanding shares, or 20% ownership in Ericksen Company.
- Therefore, Fossil's share of Ericksen's earnings is $40,000 x 20% = $8,000, which should be added to Fossil's Investment in Ericksen Company account.
- Fossil's share of Ericksen's dividends is $10,000 x 20% = $2,000, which should be subtracted from Fossil's Investment in Ericksen Company account.
- Fossil's Investment in Ericksen Company account at December 31, 2011 should be: 
   $60,000 (initial investment) + $8,000 (Fossil's share of Ericksen's earnings) - $2,000 (Fossil's share of Ericksen's dividends) = $66,000.

Therefore, the correct choice is B) $66,000.

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