Question

under the equity method, if net loss reported by investee, what is the effect on investor's...

under the equity method, if net loss reported by investee, what is the effect on investor's Account?

a. Record assets and increase in investment account

b. Record income from investment and increase investment account

c. Record asset ( cash or Receivable ) and decrease in investment

d. Record loss from investment and increase investment account

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Answer #1
When Loss is reported by the investee under equity method of accounting the value of the investment in the associate is reduced to the extend of loss reported multiplied by interest in associate in percentage terms.
Investment account is increased only when net income/profit is reported by the investee.
Under options (a), (b) and (d) investment account is increased - Hence all these options are incorrect.
Hence, correct answer is option (c ) Record asset ( cash or Receivable ) and decrease in investment
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