Under the Equity Method, Which of the Following Statements Is

question 44

Multiple Choice

Under the Equity Method, which of the following statements is TRUE?

• A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
• B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
• C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
• D) The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

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Definitions:

Operating Expenses

Costs associated with the day-to-day operations of a business, including rent, utilities, and salaries.

Statement Of Income

This financial document reports a company's financial performance over a specific period, showing revenues, expenses, and net income.

Classifying Expenses

The process of categorizing expenses in financial records to accurately represent the nature of each expenditure.

Administrative Expenses

Overheads and costs relating to the general operation of a business, including salaries of non-sales personnel, rent, and utilities.