Asked by Caleb Glenney on May 13, 2024
Verified
With the equity method, the investor recognizes its share of the earnings of the subsidiary when the
A) investor sells the investment
B) investee pays a cash dividend
C) investee declares a cash dividend
D) investee reports earnings on its income statement
Equity Method
An accounting technique used to record investments in other companies, recognizing income based on the investor's share of the investee's profits.
Subsidiary Earnings
Profits generated by a company that is majority-owned or fully owned by another company (the parent company).
Income Statement
An income statement is a financial document that shows a company's revenues, expenses, and net income over a specific period.
- Acquire knowledge and utilize the equity method in investment accounting.
Verified Answer
JA
Joice Antonnette VillanuevaMay 17, 2024
Final Answer :
D
Explanation :
With the equity method, the investor recognizes its share of the earnings of the subsidiary when the investee reports earnings on its income statement. This is usually done on a regular basis, such as quarterly or annually, and the investor records its share of the earnings based on its ownership percentage in the subsidiary. This is different from recognizing dividends, which only occur when the investee actually pays out cash to its shareholders.
Learning Objectives
- Acquire knowledge and utilize the equity method in investment accounting.