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Caraway Corporation earns $120,000 and pays cash dividends of $40,000 during 2011.Macoon Corporation owns 3,000 of the 10,000 outstanding shares of Caraway and exercises significant influence.
-What amount should Macoon show in the investment account at December 31, 2011 if the beginning of the year balance in the account was $160,000?

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Macoon Corporation owns 30% of Caraway Corporation (3,000 out of 10,000 shares) and exercises significant influence, so it should use the equity method. Under the equity method, Macoon would recognize 30% of Caraway's earnings and dividends. Earnings: $120,000 * 30% = $36,000. Dividends: $40,000 * 30% = $12,000. The investment account would increase by the earnings and decrease by the dividends: $160,000 + $36,000 - $12,000 = $184,000.

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