Pyming Corporation Accounts for Its 40% Investment in Sillabog Company

question 9

Multiple Choice

Pyming Corporation accounts for its 40% investment in Sillabog Company using the equity method.On the date of the original investment,fair values were equal to the book values except for a patent,which cost Pyming an additional $40,000.The patent had an estimated life of 10 years.Sillabog has a steady net income of $20,000 per year and consistently pays out 40% of its net income as dividends to its shareholders.Which one of the following statements is correct?

• A)The net change in the investment account for each full year will be a debit of $8,000.
• B)The net change in the investment account for each full year will be a debit of $4,800.
• C)The net change in the investment account for each full year will be a debit of $800.
• D)The net change in the investment account for each full year will be a credit of $800.