Adjustments to the entity's share of the equity of the associate or joint venture are not made to accounts such as __________________ as would occur under the consolidation method.

Question

Quizplus · Accepted Answer

Adjustments to the entity's share of the equity of the associate or joint venture are not made to accounts such as sales and cost of sales as would occur under the consolidation method. This is because under the equity method, the investment in the associate or joint venture is recognized on the balance sheet, and the entity records its share of the associate's or joint venture's profits or losses on the income statement as equity income or loss. However, the entity is not consolidating the associate or joint venture, so there is no need to adjust accounts such as sales and cost of sales. Instead, these accounts reflect the associate's or joint venture's own sales and costs of sales. Answer choices A, B, and D are not correct because retained earnings, downstream transactions, and upstream transactions may be affected by adjustments to the entity's share of the equity of the associate or joint venture under the equity method.

Adjustments to the Entity's Share of the Equity of the Associate