Table 16-2
Big Corporation paid $95,000 to acquire a 30% investment in the common shares of Little Corporation on January 3, 2017. On December 31, 2017, Little Corporation's net income was $210,000 and Little Corporation paid dividends of $80,000. On December 31, 2018, Little Corporation's net income was $170,000 and Little Corporation paid dividends of $60,000. Big Corporation used the equity-method to account for this investment.
-Refer to Table 16-2.Big Corporation's entry to record the acquisition of these shares includes a:

Question

Quizplus · Accepted Answer

When using the equity method, the initial investment should be recorded at cost, which includes any expenses incurred to purchase the investment. Therefore, Big Corporation's entry to record the acquisition of these shares should include a debit to Investment in Little Corporation Common Shares for $95,000.

Table 16-2 Big Corporation Paid $95,000 to Acquire a 30% Investment in Investment