Asked by Minh Anh Tr?n Ng?c on Jul 22, 2024
Verified
Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of the
A) investment only
B) investment plus Wendell's share of Porter's net income earned since the investment was purchased
C) investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased
D) investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased
Investment Account
An account that is used to hold and manage securities, such as stocks, bonds, and mutual funds, for investment purposes.
Equity Method
An accounting method for recording investments in which an investor has significant influence over the investee, reflecting the investor's share of the investee's profits or losses.
- Grasp the equity method and fair value method of accounting for investments.
Verified Answer
EJ
Emily JonesJul 23, 2024
Final Answer :
D
Explanation :
The equity method includes the recognition of Wendell Company's share of Porter Company's net income since the investment was purchased. However, to determine the actual amount of Wendell Company's investment in Porter Company, the total amount of dividends that Wendell Company has received from Porter Company since the investment was purchased must be subtracted from Wendell Company's share of Porter Company's net income earned since the investment was purchased. Therefore, the balance in the investment account would be equal to the investment cost plus Wendell's share of net income earned since the purchase, minus the total amount of dividends received.
Learning Objectives
- Grasp the equity method and fair value method of accounting for investments.