Question

When the equity method of accounting for investments is used by the investor, the investment account is increased when: 

A cash dividend is received from the investee.
       The investee reports a net income for the year.
       The investor records additional depreciation related to the investment.
       The investee reports a net loss for the year.
Assume that, on 1/1/06, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and fair value of Yankee's identifiable net assets were both $4,000,000 at 1/1/06. The following information pertains to Yankee during 2006:

• Net Income$200,000
• Dividends declared and paid$60,000
• Market price of common stock on 12/31/06
• $22/share

What amount would Matsui report in its year-end 2006 balance sheet for its investment in Yankee? (Points : 1)         $1,320,000
       $1,260,000
       $1,242,000
       None of the above is correct.

Answer 1