Asked by alexandrra jaranilla on May 14, 2024
Verified
When an investment is accounted for using the Equity Method, how are the investor's share of the investee's income from non-operating sources (such as gains or losses from discontinued operations) to be accounted for by the investor?
A) Any such gains or losses are to be charged directly to Retained Earnings net of tax.
B) Any such gains or losses are included with the revenue and expenses from operations. The investor's pro rata share of these after-tax gains and losses are added to or deducted from the Investment account.
C) Any such gains or losses are shown separately, net of tax, below income from operations on the investor's Income Statement. The investor's pro rata share of these after-tax gains and losses are added to or deducted from the Investment account.
D) No specific accounting treatment is required. These items simply have to be disclosed in notes to the financial statements.
Non-Operating Sources
Revenue or income that arises from activities not related to a company’s core business operations.
Discontinued Operations
Parts of a company's core business or product lines that have been sold, disposed of, or discontinued.
- Identify and apply the equity method of accounting for investments in associates, including recognizing the investor's share of profits and losses.
Verified Answer
PK
Pragya KunwarMay 15, 2024
Final Answer :
C
Explanation :
When an investment is accounted for using the Equity Method, any non-operating gains or losses of the investee are shown separately, net of tax, below income from operations on the investor's Income Statement. The investor's pro rata share of these after-tax gains and losses are added to or deducted from the Investment account. This is in accordance with GAAP requirements for reporting the investor's share of the investee's income.
Learning Objectives
- Identify and apply the equity method of accounting for investments in associates, including recognizing the investor's share of profits and losses.