Asked by Diana Garcia on Jun 14, 2024
Verified
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR Inc. uses the Equity Method, what effect would the above information have on GNR's investment in NMX account?
A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.
Net Income
Net Income is the total profit of a company after all expenses and taxes have been deducted from total revenue.
Dividends
Dividends refer to the distributions of a portion of a company's profits to its shareholders, made by the corporation.
- Attain an understanding of the processes underpinning the Equity Method for investments accounting.
Verified Answer
US
Upinder Singh SaraoJun 17, 2024
Final Answer :
B
Explanation :
Since GNR Inc. uses the Equity Method, it recognizes its share of NMX Inc.'s earnings and dividends. Therefore, GNR's investment in NMX account would increase by $30,000 ($40,000 net income x 100% ownership - $10,000 dividends).
Learning Objectives
- Attain an understanding of the processes underpinning the Equity Method for investments accounting.