On January 1, 2022, Chic Corp.paid $750,000 for 100,000 shares of Toto Company's common stock, which represents 25% of Toto's outstanding common stock.Toto reported income of $300,000 and paid cash dividends of $80,000 during 2022 Chic should report the investment in Toto Company on its December 31, 2022, balance sheet at

Question

Quizplus · Accepted Answer

Chic Corp. should use the equity method since it owns 25% of Toto. The investment is initially recorded at cost ($750,000) and adjusted for its share of Toto's income (25% of $300,000 = $75,000) and dividends received (25% of $80,000 = $20,000). The investment value is $750,000 + $75,000 - $20,000 = $805,000.