Ramiro Company purchased 40% of the outstanding stock of Marco Company on January 1. Marco reported net income of $90,500 and declared dividends of $21,500 during the year. How much would Ramiro adjust its investment in Marco Company under the equity method

Given the following:

Purchased outstanding stock by Ramiro = 40%

Marco net income = $90,500

Marco dividend = $21,500

From the information above, under the Equity method, Purchasing a percentage share of a stock entitles the buyer to partial ownership of the company. With Ramiro's 40% purchase of Marco's outstanding stock, Ramiro is entitled to 40% of Marco's net income and dividend.

Therefore;

40% of net income:

0.4 * $90,500 = $36,200 (Ramiro's share of net income)

40% of dividend:

0.4 * $21,500 = $8600 (Ramiro's share of dividend)

Ramiro's adjustment = $ (36,200 - 8600) = $27,600