Which of the following statements is TRUE regarding the equity method?

A) The equity method is used for reporting gains or losses for non-strategic investments.
B) The investor's share of the associate's dividends declared is reported as revenue.
C) The investor's investment in the associate changes in direct relation to the changes taking place in the associate's equity accounts.
D) The equity method reports unrealized gains and losses on revaluations to fair value in net income.

Question

Henry Pearson · Accepted Answer

Final Answer : C, Explanation :  The equity method reports the investor's investment in the associate as it changes in direct relation to the changes taking place in the associate's equity accounts. This method is used for reporting strategic investments, and the investor's share of the associate's profits or losses is reported as equity income. Dividends declared by the associate are not reported as revenue but instead reduce the carrying value of the investment. Unrealized gains and losses on revaluations to fair value are not reported in net income under the equity method.

Definitions

Learning Objectives

Learning Objectives

Related questions