An investor company owns 30% of the shares in an investee.If the share investment is being accounted for using the equity method of accounting and the investee earns $125,000 of net income,the investor will make an entry that includes a:

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Under the equity method of accounting, an investor recognizes its share of the profits and losses of the investee in its own financial statements. The investor's share of the investee's net income increases the carrying amount of the investment. Therefore, if the investee earns $125,000 of net income, the investor, owning 30% of the shares, would recognize 30% of $125,000, which is $37,500, as an increase to the investment account (Long-Term Investment). This is recorded as a debit to the Long-Term Investment account for $37,500.

An Investor Company Owns 30% of the Shares in an Investee.If