Nance Company owns 40% interest in the shares of Finley Corporation.

Nance Company owns 40% interest in the shares of Finley Corporation. During the year,Finley pays $25,000 in dividends, and reports $100,000 in net income. Nance Company’sinvestment in Finley will increase by

a.$25,000.
b.$40,000.
c.$32,000.
d.$30,000.

ANSWER: The investor reports his or her portion of the investee’s net income using the equity method, in this case 40% of $100,000 = $40,000.

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