Asked by Joseph Stewart on Jun 17, 2024
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Ocean Corporation owns 30% of Woods Corp.for which it paid $5.5 million and uses the equity method to account for the investment.Woods Corp.paid stockholders a $100,000 dividend.Therefore,the Investment in Woods Corp.account will decrease by Ocean's $30,000 proportionate share of the Woods.Corp.dividend.
Equity Method
A method of accounting for investments in which the investor recognizes income based on the proportionate share of the investee’s profit or loss.
Investment Account
An account held at a financial institution or brokerage that is used to hold securities, stocks, bonds, mutual funds, and other investments.
Proportionate Share
This refers to an investor's or shareholder's portion of profits, losses, or stock based on their percentage ownership in the company.
- Comprehend the equity method of accounting and its implications on dividends and investment valuation.
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Learning Objectives
- Comprehend the equity method of accounting and its implications on dividends and investment valuation.
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