Tupelo Corporation used the equity method to account for a 25% ownership interest in Jordan Corporation. If Jordan Corporation reports $300,000 of income and pays $60,000 of dividends, the net effect of the entries made by Tupelo Corporation will be to:

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When using the equity method, the investor company records its share of the investee company's income as an increase to its investment account. Therefore, Tupelo Corporation will increase its Investment account by 25% of Jordan Corporation's income, which is $75,000 ($300,000 x 25%). Tupelo Corporation will also record its share of the dividends paid by Jordan Corporation as a decrease to its investment account. 25% of the $60,000 dividends paid is $15,000. Therefore, the net effect of the entries made by Tupelo Corporation will be to increase the Investment account by $60,000 ($75,000 - $15,000).

Tupelo Corporation Used the Equity Method to Account for a 25