Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

Question

Quizplus · Accepted Answer

When using the equity method, the investor records their share of the investee's profits or losses in their own financial statements. In this case, Flubber Corporation owns 40% of Rhim Corporation's voting stock, so they would record their share of Rhim's net loss of $30,000 as a reduction to the Investment in Rhim Corporation account. Since Flubber's share of the loss would be 40% of $30,000 or $12,000, the entry would be: Loss, Rhim Corporation Investment $12,000; Investment in Rhim Corporation $12,000.

Flubber Corporation Owns 40 Percent of the Voting Stock of Rhim