_____ On 5/1/05, Platt created a 100%-owned subsidiary, Switt, with a cash investment of $500,000. Switt reported a net loss of $600,000 for 2005 and net income of $140,000 for 2006. Platt has not guaranteed any of the subsidiary's debt. Under the equity method, what should be the amount reported in Platt's income statement for 2006-not 2005-relating to its investment in Switt?

Question

Quizplus · Accepted Answer

Under the equity method, Platt would recognize its share of Switt's net income or loss in its own income statement. Since Platt owns 100% of Switt, it would recognize 100% of Switt's net income of $140,000 for 2006. The net loss of $600,000 from 2005 would have already been recognized in 2005, and the equity in Switt would have been adjusted accordingly at that time. Therefore, for 2006, Platt would report $140,000 related to its investment in Switt.

_____ on 5/1/05, Platt Created a 100%-Owned Subsidiary, Switt, with a Cash