Assume that horicon corp acquired 25% of the common stock of sheboygan corp. on january 1 for $300,000. during the year sheboygan corp. reported net income of $160,000 and paid total dividends of $60,000. if horicon uses the equity method to account for its investment, the balance in the investment account on december 31 will be

The balance in the investment account on December 31 will be $325,000

Explanation:

The equity method is computed by applying an equation which is shown below:

= Opening balance of common stock + rate of common stock × (Net income - dividend paid)

= $300,000 + 25% × ($160,000 - $60,000)

= $300,000 + 25% × $100,000

= $300,000 + $25,000

= $325,000

Since, only 25% of common stock is acquired so, only 25% is to be considered in the computation part. And all other balances are also considered together.

Hence, the balance in the investment account on December 31 will be $325,000

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