Question
In: Accounting
Delta Corporation has owned 45% of the voting stock of Egret Company for many years, originally...
Delta Corporation has owned 45% of the voting stock of Egret Company for many years, originally purchased at book value and reported using the equity method. Egret has reported significant net losses in recent years, and at the beginning of 2019, the carrying value of the investment is $1,000,000. Egret reports a loss of $3,000,000 for 2019, and the loss is considered other than temporary. In 2020 Egret unexpectedly reports net income of $900,000. Required:
a. What amount should Delta report on its 2019 income statement as equity in net loss of Egret?
b. What amount should Delta report on its 2020 income statement as equity in net income of Egret
Solutions
Expert Solution
Using Equity method of investment.
a). Amount delta should report on its 2019 income statement as
equity in net loss of Egret is
= $3,000,000 * 45%
= $1,350,000
b). Amount delta should report on its 2020 income statement as
equity in net income of Egret is
= $900,000 * 45%
= $405,000
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