Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1.On October 17 of the same year,Ferris Corporation declared total cash dividends of $12,000.At year-end,Ferris Corporation reported net income of $60,000.The balance in the Bharrat's Equity Method Investments-Ferris account at December 31 should be:
A)$80,800.
B)$100,000.
C)$95,200.
D)$119,200.
E)$124,000.

Question

Quizplus · Accepted Answer

Under the equity method, Bharrat Corporation would increase its investment by its share of Ferris Corporation's net income and decrease it by the dividends received. Bharrat's share of Ferris's net income is 40% of $60,000 = $24,000. Bharrat's share of the dividends is 40% of $12,000 = $4,800. The investment account would be adjusted as follows: $100,000 + $24,000 - $4,800 = $119,200.

Bharrat Corporation Purchased 40% of Ferris Corporation for $100,000 on January