Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting.The investment was made on January 1,2017,at a cost of $625,000.Pipeline Corporation reported net income of $85,000 for the year ended December 31,2017,and paid total dividends of $20,000 during 2017.On December 31,2017,after making all appropriate entries,the balance in Barking Power Company's Long-Term Investment account will equal:

Question

Quizplus · Accepted Answer

Under the equity method, the investment is initially recorded at cost. Barking Power Company will increase its investment account by 35% of Pipeline Corporation's net income and decrease it by 35% of the dividends received. Therefore, the balance will be $625,000 + (0.35 * $85,000) - (0.35 * $20,000) = $647,750.

Barking Power Company Accounts for Its 35% Investment in Pipeline