Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2011, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2011, how much income should Yaro recognize related to this investment?

Question

Quizplus · Accepted Answer

Yaro should recognize 30% of Dew's reported income as its share of the income, which is 30% of $250,000, equaling $75,000. Dividends do not affect the income recognized under the equity method.

Yaro Company Owns 30% of the Common Stock of Dew