Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a

Question

Quizplus · Accepted Answer

As per the equity method, the investor records its share of the investee's net income or loss in the period in which it is reported. In this case, since Zach Company owns 45% of the Tomas Corporation, it should record 45% of the reported net loss of $20,000, which is $9,000 (45% of $20,000).

Therefore, the entry for Zach Company would include a credit to the investment account for $9,000, reflecting the decrease in the value of the investment due to the loss reported by Tomas Corporation.

Zach Company Owns 45% of the Voting Stock of Tomas