Eglin Company owns 30% interest in the stock of Bosco Corporation. During the year, Rhodes pays $10,000 in dividends to Eglin, and reports a net loss of $250,000. Eglin Company's investment in Bosco will affect Eglin net income by a
A) $10,000 increase.
B) $75,000 increase.
C) $75,000 decrease.
D) $10,000 decrease.

Question

Quizplus · Accepted Answer

Eglin owns 30% of Bosco, so it must account for its share of Bosco's net loss using the equity method. Eglin's share of the loss is 30% of $250,000, which is $75,000. This decreases Eglin's net income by $75,000. The $10,000 dividend does not affect net income under the equity method.

Eglin Company Owns 30% Interest in the Stock of Bosco