Columbus Company owns 25% of Zanesville Inc. and accounts for the investment using the equity method. During the year, Zanesville Inc. reports a net loss of $1,602,000 and pays total dividends of $73,800.
Which of the following describes the change in Columbus's investment in Zanesville during the year?

Question

Quizplus · Accepted Answer

Under the equity method, Columbus Company would decrease its investment by 25% of Zanesville's net loss ($1,602,000 * 25% = $400,500) and also decrease by 25% of the dividends received ($73,800 * 25% = $18,450). The total decrease is $400,500 + $18,450 = $418,950.

Columbus Company Owns 25% of Zanesville Inc