Ocean Corporation owns 30% of Woods Corp. for which it paid $5.5 million and uses the equity method to account for the investment. Woods Corp. paid stockholders a $100,000 dividend, and the investment in Woods Corp. account will decrease by $30,000, which is Ocean's proportionate share of the dividend.

Question

Quizplus · Accepted Answer

This statement is true. According to the equity method, the investment account is adjusted for the proportionate share of the investee's earnings or losses and any dividend distributions. Therefore, Ocean's investment account in Woods Corp. will decrease by its proportionate share of the dividend, which is $30,000 (30% of $100,000).

Ocean Corporation Owns 30% of Woods Corp