A gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the:
A) cost of the long-term investment
B) cost of the long-term investment adjusted for the investor's share of the investee's net income and cash dividends while the investment was held by the investor company
C) lower-of-cost-or-market value of the long-term investment
D) market value of the long-term investment

Question

Quizplus · Accepted Answer

The gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the cost of the long-term investment adjusted for the investor's share of the investee's net income and cash dividends while the investment was held by the investor company. This is because the equity method records the investment at cost initially and then adjusts it for the investor's share of the investee's net income and cash dividends. Therefore, the cost of the investment reflects the increase or decrease in value due to the investee's performance while the investor held the investment.

A Gain or Loss on Sale of a Long-Term Investment