Under the Equity Method of Accounting, Items Affecting the Investment

question 3

Multiple Choice

Under the equity method of accounting, items affecting the investment income account include all but the investor's portion of:

• A)the investee's net income.
• B)​any intercompany profits in inventory.
• C)​the investee company's dividends.
• D)​the amortization of the excesses of the price over the book value of the investment.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.

Investment

The action of deploying resources (such as capital) with the expectation of generating an income or profit.

Cost Method

is an accounting approach used for recording investments, where the investment is recorded at its acquisition cost and adjustments are made for dividends or interest earned and changes in value are not recognized until sold.

Trading Securities

Trading securities are investments in debt or equity that are purchased with the intention of selling them in the near term to realize short-term gains.