On January 1,2009 Athlon Company acquired 30 percent of the common stock of Opteron Corporation,at underlying book value.For the same year,Opteron reported net income of $55,000,which includes an extraordinary gain of 40,000.It did not pay any dividends during the year.By what amount would Athlon's investment in Opteron Corporation increase for the year,if Athlon used the equity method?

Question

Quizplus · Accepted Answer

Under the equity method, the investor recognizes its share of the investee's net income or loss. In this case, Athlon Company acquired 30% of Opteron's common stock. Therefore, Athlon's share of Opteron's net income would be 30% x $55,000 = $16,500. The extraordinary gain of $40,000 is not included in the calculation since it is considered non-recurring and not a part of Opteron's normal operations. Therefore, Athlon's investment in Opteron Corporation would increase by $16,500 for the year if it used the equity method.

On January 1,2009 Athlon Company Acquired 30 Percent of the Common