If an investor company owns 35% of the common stock of another business,income received from the investee company are generally recorded by the investor company by:

Question

Quizplus · Accepted Answer

When an investor company owns 35% of the common stock of another business, it is generally considered as having significant influence. Therefore, the equity method of accounting is used by the investor company to record income received from the investee company. Under the equity method, the investor company increases the value of its Equity-Method Investment account to reflect the income received. Therefore, the correct answer is B. Option A and C are incorrect as they do not reflect the equity method of accounting. Option D is incorrect because decreasing the value of the Equity-Method Investment account would not reflect the income received from the investee company.

If an Investor Company Owns 35% of the Common Stock