Bailey Corporation accounts for its 35% investment in Carnes Corporation under the equity method of accounting.The investment was made on January 2,2017,at a cost of $450,000.From the date of the investment until December 31,2017,Carnes Corporation reported $100,000 of income and paid $40,000 in dividends.After making all appropriate entries,the balance in Bailey Corporation's investment in common shares account will equal:

Question

Quizplus · Accepted Answer

Under the equity method of accounting, the investment account is adjusted for the investor's share of the investee's income or loss and dividends received. 
Investor's share of income = $100,000 x 35% = $35,000 
Investor's share of dividends = $40,000 x 35% = $14,000 
The investment account balance on December 31, 2017, would be: 
$450,000 + $35,000 - $14,000 = $471,000. 
Therefore, the correct answer is B.

Bailey Corporation Accounts for Its 35% Investment in Carnes Corporation