Under the equity method of accounting for investments,the investor recognizes income for ________.
A) the investor's share of income earned by the investee company
B) dividends received from the investee company
C) the change in market value of the investee company's stock
D) the amortization of goodwill associated with the investee company

Question

Quizplus · Accepted Answer

Under the equity method of accounting, the investor recognizes its share of income earned by the investee company as income. This is because the investor is seen as having a significant influence over the investee company and is therefore deemed to share in the investee's profits and losses. Dividends received from the investee company are not recognized as income under the equity method, but are instead treated as a reduction in the investment carrying amount. The change in market value of the investee company's stock does not affect the recognition of income for the investor. Goodwill associated with the investee company is also not recognized as income under the equity method, but is instead subject to periodic impairment testing.

Under the Equity Method of Accounting for Investments,the Investor Recognizes