An investor company owns 25% of the shares in an investee.If this investment is being accounted for using the equity method of accounting and the investee reports a net loss of $96,000 for the year,the following will result:

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When using the equity method of accounting, the investor company must recognize its proportionate share of the investee's net income or loss. In this case, the investor company owns 25% of the shares, so it must recognize 25% of the investee's net loss of $96,000, which is $24,000. Therefore, the Investment Loss account (a contra-equity account) will be debited for $24,000 to reduce the value of the long-term investment in the investee.

An Investor Company Owns 25% of the Shares in an Investee.If