Question

22. Dividend Revenue is never recorded for dividends received from an Equity Method Investment. 23. Under the equity method, the Equity Method Investment account is being adjusted for the investor’s share (ownership %) of changes in the investee company’s equity. When the investee company reports earnings, the investee company’s equity increases and the value of the Equity Method Investment on the investor’s balance sheet will ___________________. When the investee company pays dividends to its shareholders, the investee company’s equity decreases and the value of the Equity Method Investment on the investor’s balance sheet will ______________________. 24. Long-term investments in equity securities with controlling influence are accounted for using the ________________________________ method. 25. The controlling investor company is called the __________________, and the investee company is called the ______________________________

Answer 1

23. Under the equity method, the Equity Method Investment account is being adjusted for the investor’s share (ownership %) of changes in the investee company’s equity. When the investee company reports earnings, the investee company’s equity increases and the value of the Equity Method Investment on the investor’s balance sheet will Increase. When the investee company pays dividends to its shareholders, the investee company’s equity decreases and the value of the Equity Method Investment on the investor’s balance sheet will reduce.

Answer : 1. increase 2 reduce or decrease

Reason being – When investee company (subsidiary company) earns or reports profits, investor’s company’s investment account will be increased by percentage of acquisition. However, when investee company pays dividend, investor’s company receives dividend as per its share of investment where they received cash/amount from investee company, which is reflected as reduction in the investment account.

24.Long-term investments in equity securities with controlling influence are accounted for using the Equity method.

Answer: Equity

When investor has significant influence over the investee company it is called as Equity method of acquisition. Here, investor does not use full control over investee.

25. The controlling investor company is called the parent company, and the investee company is called the subsidiary.

Answer: 1 Parent company 2 Subsidiary

Here, investor company has effective control of the investee company where investor owns at least 50.1% of subsidiary shares or voting rights.