On January 2, 2020, Fidel Corp. purchased 200 of the 1,000 outstanding common shares of Rindu Ltd. for $ 60,000. During 2020, Rindu declared total cash dividends of $ 10,000 and reported net income for the year of $ 40,000. If Fidel uses the equity method of accounting for its investment in Rindu, Fidel's Investment in Rindu Ltd. account at December 31, 2020 should be

Question

Quizplus · Accepted Answer

Under the equity method, the initial investment is recorded at cost and adjusted for the investor's share of the investee's net income and dividends declared.

Initial investment = $60,000
Share of net income = 200/1000 × $40,000 = $8,000
Share of dividends = 200/1000 × $10,000 = $2,000

Investment in Rindu Ltd. account = Initial investment + Share of net income - Share of dividends
Investment in Rindu Ltd. account = $60,000 + $8,000 - $2,000 = $66,000

Therefore, the correct answer is B) $66,000.