Barking Power Company accounts for its 35% investment in Pipeline Corporation under the equity method of accounting. The investment was made on January 1, 2014, at a cost of $625,000. Pipeline Corporation reported net income of $85,000 for the year ended December 31, 2014, and paid total dividends of $20,000 during 2014. On December 31, 2014, after making all appropriate entries, the balance in Barking Power Company's Long-Term Investment account will equal:

Question

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Under the equity method, the investor recognizes its share of the investee's net income and dividends. Barking Power Company's share of Pipeline Corporation's net income is 35% of $85,000, which is $29,750. The dividends received are 35% of $20,000, which is $7,000. The investment account is increased by the share of net income and decreased by the share of dividends. Therefore, the balance is $625,000 + $29,750 - $7,000 = $647,750.

Barking Power Company Accounts for Its 35% Investment in Pipeline