Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the
A) investor sells the investment.
B) investee declares a dividend.
C) earnings are reported by the investee in its financial statements.
D) investee pays a dividend.

Question

Quizplus · Accepted Answer

Under the equity method, the investor recognizes its share of the earnings in the period in which the investee reports the earnings in its financial statements. This reflects the economic reality that the investor's ownership interest is in the investee's earnings, rather than in the investee itself. It is not dependent on the investor selling the investment or the investee paying a dividend.

Under the Equity Method of Accounting for Investments, an Investor