Aroma Limited owns a 25% interest in the shares of Baltic Corporation. During the year, Baltic pays $10,000 in dividends to Aroma and reports $100,000 net income. Aroma's investment in Baltic will increase Aroma's net income by

Question

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Aroma Limited owns a 25% interest in Baltic Corporation, which means it should use the equity method to account for its investment. Under the equity method, Aroma recognizes its share of Baltic's net income, which is 25% of $100,000, equaling $25,000. Dividends received do not affect net income under the equity method.

Aroma Limited Owns a 25% Interest in the Shares of Baltic