Madison Corporation purchased 40% of Jay Corporation for $125,000 on January 1.On June 20 of the same year,Jay Corporation declared total cash dividends of $30,000.At year-end,Jay Corporation reported net income of $150,000.The balance in Madison's Equity Method Investments-Jay Corporation account as of December 31 should be:

A) $77,000.
B) $125,000.
C) $173,000.
D) $197,000.
E) $370,000.

Question

Anthony Landa · Accepted Answer

Final Answer : C, Explanation :  To find the balance in Madison's Equity Method Investments-Jay Corporation account, we need to take into account the dividends received and the share of net income earned by Madison.Dividends received: Madison owns 40% of Jay Corporation, so it would receive 40% of the total cash dividends declared, which is $12,000 ($30,000 x 40%).Share of net income earned: Madison owns 40% of Jay Corporation, so it would earn 40% of the net income reported, which is $60,000 ($150,000 x 40%).Therefore, the total increase in the Equity Method Investments-Jay Corporation account is $72,000 ($12,000 + $60,000), which brings the balance to $197,000 ($125,000 + $72,000) at year-end.Therefore, the correct answer is C.

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