Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a
A) credit to cash for $9,000
B) debit to the investment account for $9,000
C) credit to the investment account for $9,000
D) credit to a loss account for $9,000

Question

Quizplus · Accepted Answer

Since Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment, it means that Zach Company has significant influence over Tomas Corporation. With a net loss reported by Tomas Corporation, Zach Company would need to record its portion of that loss in its financial statements. The entry should include a credit to the investment account for $9,000 (45% of the $20,000 net loss).

Zach Company Owns 45% of the Voting Stock of Tomas