An investor owns 30% of the outstanding common stock of an investee company, which allows the investor to exercise significant influence over the investee. The Equity Investment was reported at $500,000 as of the end of the previous year. During the year, the investor receives dividends of $50,000 from the investor. The investee reports the following income statement for the year:

Revenues	$2,000,000
Expenses	1,570,000
Net income	$430,000

Required a. How much equity income should the investor report in its current year income statement?

$Answer

b. What amount should the investor report in its balance sheet at the end of the year for the Equity Investment?

$Answer

c. Assume the market value of the investee company is $4.3 million at the end of the year. The investees equity investment account in the investors financial statements should:

be adjusted to fair value.

remain at adjusted cost.

remain at the adjusted cost plus a gain should be reported in AOCI.