Giant uses the equity method to account for the operations of its 40% owned subsidiary Little. A portion of Little's profits for the year are included in Giant's GAAP book income.

Question

Quizplus · Accepted Answer

Under the equity method of accounting, an investor recognizes its share of the profits and losses of the investee in its own income statement. Since Giant owns 40% of Little, it would include 40% of Little's profits in its GAAP book income.

Giant Uses the Equity Method to Account for the Operations