Under the equity method, when the company's share of cumulative losses equals its investment and the company has no obligation or intention to fund such additional losses, which of the following statements is true?

Question

Quizplus · Accepted Answer

When the company's share of cumulative losses equals its investment and the company has no obligation or intention to fund such additional losses, the investor should suspend applying the equity method and not record any equity in income of investee until its share of future profits is sufficient to recover losses that have not previously been recorded. This is because under the equity method, the investor recognizes its share of the investee's profits and losses, and when the losses exceed the investment, the investor needs to wait until future profits are enough to recover the losses. Therefore, option C is the correct choice. The other options are incorrect as they do not reflect the appropriate treatment under the equity method in this scenario.

Under the Equity Method, When the Company's Share of Cumulative