When the equity method is used to account for stock investments, the carrying value of an investment is computed as the cost of the investment plus a proportional share of investee net income minus a proportional share of cash dividends paid by the investee.

Question

Quizplus · Accepted Answer

The equity method records the investment at cost and adjusts it for the investor's share of the investee's net income and dividends, increasing the carrying value with income and decreasing it with dividends.

When the Equity Method Is Used to Account for Stock