This Question: 1 pt 18 of 21 (0 complete) This Quiz: 25 pts possible CH $21,000

Question

This Question: 1 pt 18 of 21 (0 complete) This Quiz: 25 pts possible CH $21,000 or the ear At the Daniel Corp any purchased 30% of the outstanding shares of Clooney Corporation on January 1 at a cost of $610 000. Clooney Corporation reported net income c $98 and declared and aid total dividends end of the year, Clooney shares had a current fair value of $596,000. After all necessary adjusting entries are made for the year, the balance in Daniel Company's Equity-Method Investment account will be: OA. $633,100 OB. $673,000. O C. $596,000. O D. $687,000. Click to select your answer.

Explanation / Answer

The equity method of accounting is used to account for an organization’s investment in another entity (the investee). This method is only used when the investor has significant influence over the investee. Under this method, the investor recognizes its share of the profits and losses of the investee in the periods when these profits and losses are also reflected in the accounts of the investee. Any profit or loss recognized by the investing entity appears in its income statement. Also, any recognized profit increases the investment recorded by the investing entity, while a recognized loss decreases the investment.

Therefore,

Balance in Investment Account = 610000+(98000-21000)*30%

= 610000+23100

= 633100

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