Which of the following statements is TRUE about the equity method of accounting?
A)This method is used when the investor has no influence over the associate.
B)This method is a condensed consolidation that shows the investor's share of the net assets and net income of the investee.
C)This method record dividends from the associate as income from operations.
D)This method has the same accounting impact as the amortized cost method.

Question

Quizplus · Accepted Answer

The equity method of accounting is a condensed consolidation that shows the investor's share of the net assets and net income of the investee. Option A is incorrect because the equity method is used when the investor has significant influence, not no influence, over the associate. Option C is incorrect because dividends from the associate are recorded as a reduction in the investment, not income from operations. Option D is incorrect because the equity method is not the same as the amortized cost method.

Which of the Following Statements Is TRUE About the Equity