Madison Corporation purchased 45% of Jay Corporation for $120,000 on January 1. On June 20 of the same year, Jay Corporation declared total cash dividends of $30,000. At year-end, Jay Corporation reported net income of $150,000. The balance in Madison's Equity Method Investments—Jay Corporation account as of December 31 should be:

The correct answer is $175,500.

Explanation:

According to the scenario, the given data are as follows:

Investment value = $120,000

Acquisition Dividend = $30,000 × 45% = $12,000

Net income share = $150,000 × 45% = $67,500

So, we can calculate the balance amount by using following formula:

Balance amount = Investment value  - Acquisition Dividend + Net income share

= $120,000 - $12,000 + $67,500

= $175,500

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