Retail Energy Corporation paid $1,300,000 on January 1,2017,to purchase 32% of the outstanding shares of Natural Gas Limited.In 2017 Natural Gas Limited reported $450,000 of net income and paid $100,000 in dividends.If this investment is accounted for using the equity method of accounting,what will be the impact on the books of Retail Energy Corporation?

Question

Quizplus · Accepted Answer

Using the equity method, Retail Energy Corporation would record its share of Natural Gas Limited's net income, which is 32% of $450,000 or $144,000. The dividends paid by Natural Gas Limited do not affect the investment account. Therefore, income of $144,000 will be recorded on the books of Retail Energy Corporation for 2017.

Retail Energy Corporation Paid $1,300,000 on January 1,2017,to Purchase 32