Clark Company purchased 40% of Irene Company's stock for $125,000 on January 1. On May 20 of the same year,
Irene Company declared total cash dividends of $30,000. At year-end, Irene Company reported net income of
$150,000. The balance in Clark Company's Long–Term Investment in Irene Company as of December 31 should be:
A) $ 77,000.
B) $245,000.
C) $173,000.
D) $185,000.
E) $197,000.


Answer is C... Could you explain?

The receipt of dividends from an investee company reduces the investor's carrying amount for the investment. Going the other way, the posting of positive income by the investee increases the investor's investment amount. And of course, the investor only takes into account its percentage share of the investee's income, losses, and dividends.