Kirk Corporation owns 25 percent of the voting stock of Allen Corporation and accounts for the investment using the equity method.Allen reports a net loss of $40,000.Kirk Corporation's entry to record its share of loss is:
A)Cash 10,000 Investment in Allen Corporation 10,000
B)Loss on Investments 40,000 Investment in Allen Corporation 40,000
C)Loss,Allen Corporation Investment 10,000 Investment in Allen Corporation 10,000
D)Cash 10,000 Loss,Allen Corporation Investment 10,000

Question

Quizplus · Accepted Answer

Kirk Corporation owns 25% of Allen Corporation, so it must recognize 25% of Allen's net loss. 25% of $40,000 is $10,000. Therefore, Kirk will debit "Loss, Allen Corporation Investment" and credit "Investment in Allen Corporation" for $10,000.

Kirk Corporation Owns 25 Percent of the Voting Stock of Allen