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Rodman Co.owns 3,000 of the 10,000 outstanding common shares of Gavin Corp.and exercises significant influence.During 2011, Gavin earns $60,000 and pays cash dividends of $20,000.
-If the beginning balance in the investment account was $90,000, the balance at December 31, 2011 should be

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Use the following information for questions 
Rodman Co.owns 3,000 of the 10,000 outstanding common shares of Gavin Corp.and exercises significant influence.During 2011, Gavin earns $60,000 and pays cash dividends of $20,000.
-If the beginning balance in the investment account was $90,000, the balance at December 31, 2011 should be

Quizplus · Accepted Answer

Rodman Co. owns 30% of Gavin Corp. (3,000 out of 10,000 shares), so it uses the equity method. Under this method, Rodman recognizes 30% of Gavin's earnings, which is $18,000 (30% of $60,000), and reduces the investment by 30% of the dividends, which is $6,000 (30% of $20,000). The ending balance is $90,000 + $18,000 - $6,000 = $102,000.

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