Which Statement Is Not Correct About the Equity Method

question 120

Multiple Choice

Which statement is not correct about the equity method?

• A)The investment account on the balance sheet equals the original cost plus the investor's share of the investee's post-acquisition changes in net assets.
• B)This method results in reflecting two legal entities as one economic unit for financial reporting purposes.
• C)Income is recognized equal to the investor's share of the investee's net income.
• D)Dividends from the investee are deducted from the investor's investment account.

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Definitions:

Inflation Rate

The percent change in the price level of goods and services in an economy over a period of time, typically measured annually.

PPI

Producer Price Index, a measure of the average change over time in the selling prices received by domestic producers for their output.

Basket of Goods

A set of products or commodities compiled for the purpose of monitoring price changes in the market over time.

Nominal Interest Rate

The stated interest rate on a loan or financial product, not adjusted for inflation, reflecting the actual rate charged or paid.