When accounting for an investment under the equity method, what situations may reduce the carrying value of the investment?

I. Investee experiences significant losses.
II. Investee distributes dividends in excess of earnings.
III. Investee sells additional shares for less than book value.
IV. Investee engages in a stock split.

Question

When accounting for an investment under the equity method, what situations may reduce the carrying value of the investment?

I. Investee experiences significant losses.
II. Investee distributes dividends in excess of earnings.
III. Investee sells additional shares for less than book value.
IV. Investee engages in a stock split.

Quizplus · Accepted Answer

I. Significant losses by the investee reduce the investor's share of equity. II. Dividends in excess of earnings reduce the carrying value as they are considered a return of investment. III. Selling additional shares for less than book value does not directly affect the carrying value of the existing investment under the equity method.

When Accounting for an Investment Under the Equity Method, What