When the equity method of accounting for investments is used by the investor, the investment account is increased when:
A)A cash dividend is received from the investee.
B)The investee reports a net income for the year.
C)The investor records additional depreciation related to the investment.
D)The investee reports a net loss for the year.

Question

Quizplus · Accepted Answer

When the equity method of accounting for investments is used by the investor, the investment account is increased when the investee reports net income for the year. This is because the investor's share of the investee's net income is added to the investment account, which reflects the increase in the value of the investment. A cash dividend received from the investee would decrease the investment account, and a net loss reported by the investee would also decrease the investment account. Additional depreciation related to the investment is not relevant to the equity method of accounting.

When the Equity Method of Accounting for Investments Is Used