When an Investment Is Accounted for Using the Equity Method

question 3

Multiple Choice

When an investment is accounted for using the Equity Method, how are the investor's share of the investee's income from non-operating sources (such as gains or losses from discontinued operations) to be accounted for by the investor?

• A) Any such gains or losses are to be charged directly to Retained Earnings net of tax.
• B) Any such gains or losses are combined with revenue and expenses from operations. The investor's pro rata share of these after-tax gains and losses are added to or deducted from the Investment account.
• C) Any such gains or losses are shown separately, net of tax below income from operations on the investor's Income statement. The investor's pro rata share of these after-tax gains and losses are added to or deducted from the Investment account.
• D) No specific accounting treatment is required. These items simply have to be disclosed in a note to the financial statements.
• Bloom's

---

Definitions:

Request For Proposal

A document issued by an organization to solicit proposals from potential suppliers for a desired project or service.

Bidding Process

The procedure by which a contractor is selected to work on a project, usually involving submission of proposals and selection based on criteria such as price and capability.

Reconciliation

The process of ensuring that two sets of records or accounts are in agreement, often used in accounting to match transactions and balances.

Interest Charges

The costs incurred for borrowing money, calculated as a percentage of the total amount borrowed.