REFERENCE: Ref.01_15 Cayman Inc.bought 30% of Maya Company on January 1,2008 for 1,2008

question 36

Multiple Choice

REFERENCE: Ref.01_15
Cayman Inc.bought 30% of Maya Company on January 1,2008 for $450,000.The equity method of accounting was used.The book value and fair value of the net assets of Maya on that date were $1,500,000.Maya began supplying inventory to Cayman as follows:
Maya reported net income of $100,000 in 2008 and $120,000 in 2009 while paying $40,000 in dividends each year.
-Which of the following results in a decrease in the investment account when applying the equity method?

• A)Dividends paid by the investor.
• B)Net income of the investee.
• C)Net income of the investor.
• D)Unrealized gain on intercompany inventory transfers for the current year.
• E)Purchase of additional common stock by the investor during the current year.

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