A firm that can exert significant influence over another entity accounts for its intercorporate investment by
A)using the equity method.
B)recognizes its share of the net income or net loss of the investee, after eliminating any intercompany income items, and increases (in the case of net income) or decreases (in the case of net loss) its investment account in an equal amount.
C)comparing the acquisition cost of the investment to determine whether it exceeds the investor's interest in the net assets of the investee at the time of the acquisition, the investor must decide if the excess relates to assets or liabilities of the investee with a limited life.
D)decreasing the investment account for dividends received.
E)all of the above.

Question

Quizplus · Accepted Answer

The correct answer is E because all the options (A, B, C, D) describe aspects of the equity method of accounting, which is used by an investor when it has significant influence over the investee but does not control it. This method involves recognizing the investor's share of the investee's net income or loss, adjusting the investment account accordingly, and considering the implications of acquisition costs relative to the net assets of the investee.

A Firm That Can Exert Significant Influence Over Another Entity