GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?

Question

Quizplus · Accepted Answer

Under the equity method, GNR would recognize 80% of NMX's net income and dividends. Net income contribution would be $40,000 * 80% = $32,000, and dividends would reduce the investment by $10,000 * 80% = $8,000. The net effect is an increase of $24,000 ($32,000 - $8,000).

GNR Inc Owns 100% of NMX Inc