_____ On 1/1/06, Parco created a 100%-owned subsidiary, Sarco, with a $100,000 cash investment. During 2006, Sarco reported net income of $35,000, declared cash dividends of $15,000, and paid $10,000 of the $15,000 to the parent. What is the carrying value of the investment at 12/31/06 under the equity method?

Question

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Under the equity method, the carrying value of the investment is adjusted for the investor's share of the investee's net income and dividends. Starting with the initial investment of $100,000, add the net income of $35,000, and subtract the dividends received of $10,000, resulting in a carrying value of $125,000.

_____ on 1/1/06, Parco Created a 100%-Owned Subsidiary, Sarco, with a $100,000