When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition:
A) Reduces the investment account and increases investment revenue.
B) Increases the investment account and increases investment revenue.
C) Reduces the investment account and reduces investment revenue.
D) Increases the investment account and reduces investment revenue.

Question

Quizplus · Accepted Answer

When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition reduces the investment account and reduces investment revenue. This is because the amortization reduces the investment's fair value, which affects both the balance sheet and income statement of the investor. As a result, the investment account and investment revenue decrease.

When the Equity Method of Accounting for Investments Is Used