Daniel Company purchased 30% of the outstanding shares of Clooney Corporation on January 1 at a cost of $600,000.Clooney Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year.At the end of the year,Clooney shares had a current fair value of $590,000.After all necessary adjusting entries are made for the year,the balance in Daniel Company's Equity-Method Investment account will be:

Question

Quizplus · Accepted Answer

Under the equity method, the investment account is adjusted for the investor's share of the investee's net income and dividends. Daniel's share of Clooney's net income is 30% of $95,000, which is $28,500. The dividends received are 30% of $25,000, which is $7,500. The investment account is increased by the share of net income and decreased by the dividends received. Therefore, the balance is $600,000 + $28,500 - $7,500 = $621,000.

Daniel Company Purchased 30% of the Outstanding Shares of Clooney