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Under the equity method, Your Corporation's investment in ABC begins at $50,000, is reduced by a $5,000 dividend, and is increased by its $25,000 share of ABC's net income. What is the carrying amount of the investment after these events?
A$70,000
B$80,000
C$45,000
D$75,000
Answer & Solution
Correct answer: A. $70,000
1. Start: $50,000.
2. Less dividend received (return of investment): $\$50{,}000 - \$5{,}000 = \$45{,}000$.
3. Plus share of net income: $\$45{,}000 + \$25{,}000 = \$70{,}000$.
4. Carrying amount = $70,000. Option B forgets to deduct the dividend; C stops before adding income.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.9.2 "Recognize Net Income of the Issuing Corporation", p.185_
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