An investor company with a 20% interest in an investee properly used the equity method to account for the investment.If the entries to the investment account for the current year showed a debit of $140,000 and a credit of $20,000,the investee must have paid total dividends of:

Question

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Under the equity method, the investor recognizes its share of the investee's earnings as an increase (debit) to the investment account and its share of dividends as a decrease (credit) to the investment account. The credit of $20,000 represents the investor's share of dividends, which is 20% of the total dividends paid by the investee. Therefore, the total dividends paid by the investee would be $20,000 / 20% = $100,000.

An Investor Company with a 20% Interest in an Investee