ABC owns a 35 percent interest in the voting common of XYZ and uses the equity method. For 2013, XYZ reported income of $120,000 and declared cash dividends of $40,000. If the carrying value of XYZ investment was $290,000 on January 1, 2013, ABC should (a) recognize investment revenue for 2013, and (b) report the carrying value of the investment, as follows: $$\begin{array}{l}
\begin{array} { | l | l | l | }
\hline\text { (a) Imrestment Resenue }&\text { (b) Camying Value }\
\hline 1) & \$ 14,000 & \$ 276,000 \
\hline 2 ) & \$ 28,000 & \$ 290,000 \
\hline 3 ) & \$ 42,000 & \$ 318,000 \
\hline 4 ) & \$ 42,000 & \$ 332,000 \
\hline
\end{array}
\end{array}$$

Question

ABC owns a 35 percent interest in the voting common of XYZ and uses the equity method. For 2013, XYZ reported income of $120,000 and declared cash dividends of $40,000. If the carrying value of XYZ investment was $290,000 on January 1, 2013, ABC should (a) recognize investment revenue for 2013, and (b) report the carrying value of the investment, as follows: $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline\text { (a) Imrestment Resenue }&\text { (b) Camying Value }\
\hline 1) & \$ 14,000 & \$ 276,000 \
\hline 2 ) & \$ 28,000 & \$ 290,000 \
\hline 3 ) & \$ 42,000 & \$ 318,000 \
\hline 4 ) & \$ 42,000 & \$ 332,000 \
\hline
\end{array}
\end{array}$$

Quizplus · Accepted Answer

ABC should recognize investment revenue of $42,000 (35% of $120,000) and report the carrying value of the investment as $318,000 ($290,000 + $42,000 - $14,000, where $14,000 is 35% of the $40,000 dividends).

ABC Owns a 35 Percent Interest in the Voting Common