The Main Guidance on Equity-Method Reporting,found in ASC 323 and 325

question 55

Multiple Choice

The main guidance on equity-method reporting,found in ASC 323 and 325 requires all of the following except:

• A) The investor's share of the investee's extraordinary items should be reported.
• B) The investor's share of the investee's prior-period adjustments should be reported.
• C) Continued use of the equity-method even if continued losses results in a zero or negative balance in the investment account.
• D) Preferred dividends of the investee should be deducted from net income before the investor computes its share of investee earnings.

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Definitions:

Associate

A company in which another company owns a significant portion (usually between 20% and 50%) but not a majority stake, providing it with significant influence.

Equity Entries

Accounting transactions that affect the owners' equity account in a company's balance sheet, such as issuing stock or paying dividends.

Parent Entities

Companies that own more than half of the voting rights of another company or have control over it, making the other company a subsidiary.

Goodwill

An intangible asset that represents the excess value of a company over the fair value of its identifiable assets and liabilities, often arising from acquisitions.