GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?

Question

Quizplus · Accepted Answer

Under the equity method, GNR would recognize 80% of NMX's net income, which is $32,000 (80% of $40,000), and would reduce its investment by 80% of the dividends paid, which is $8,000 (80% of $10,000). The net effect would be an increase of $24,000 ($32,000 - $8,000).

GNR Inc Owns 100% of NMX Inc