Exhibit 13-1
On January 1, 2017, Oak Corporation paid $900,000 for 87,500 shares of Beech Company's common stock, which represents 35% of Beech's outstanding common stock. Beech reported income of $300,000 and paid a cash dividend of $100,000 during 2017.
-Refer to Exhibit 13-1. Oak should report the investment in Beech Company on its December 31, 2017, balance sheet at

Question

Quizplus · Accepted Answer

Oak Corporation uses the equity method to account for its investment in Beech Company because it owns 35% of Beech's outstanding common stock, which typically gives it significant influence over Beech. Under the equity method, Oak would increase its investment by its share of Beech's income and decrease it by any dividends received. Oak's share of Beech's income is 35% of $300,000, which is $105,000. The dividends received would be 35% of $100,000, which is $35,000. Therefore, the investment would be reported as $900,000 + $105,000 - $35,000 = $970,000 on the December 31, 2017, balance sheet.

Exhibit 13-1 On January 1, 2017, Oak Corporation Paid $900,000 for 87,500