Team Tennis owns 40% of Best Racquets, Inc. and accounts for the investment using the equity method. During the year, Best Racquets reports a net loss of $2,400,000 and pays total dividends of $50,000.
Which of the following describes the change in Team Tennis' investment in Best Racquets during the year?

Question

Quizplus · Accepted Answer

Equity method investments increase with net income of the investee and decrease with net loss and with dividends. 40% × ($2,400,000 + $50,000) = $980,000 decrease.

Team Tennis Owns 40% of Best Racquets, Inc