Under the equity method, the Investment in Associates account is increased when the
A)associate reports profits.
B)associate pays a dividend.
C)associate reports a loss.
D)investment is sold at a gain.

Question

Quizplus · Accepted Answer

Under the equity method, the Investment in Associates account is increased when the associate reports profits. This is because the investor's share of the associate's profits is recognized as an increase in the value of the investment. Conversely, if the associate reports a loss, the value of the investment is decreased. Dividends paid by the associate do not affect the value of the investment, but instead are recognized as a reduction in the associate's retained earnings. Finally, the sale of the investment at a gain would result in a realized gain or loss, but would not affect the value of the Investment in Associates account under the equity method.

Under the Equity Method, the Investment in Associates Account Is