When a subsidiary has potentially dilutive securities outstanding, the parent still applies the equity method of accounting in the normal manner.

Question

Quizplus · Accepted Answer

Under the equity method of accounting, a parent company records its investment in a subsidiary at cost and subsequently adjusts this amount for its share of the subsidiary's profits or losses and dividends received. The presence of potentially dilutive securities in the subsidiary does not alter this approach; the equity method focuses on the parent's share of earnings and investment balance, not on the potential dilution of shares.

When a Subsidiary Has Potentially Dilutive Securities Outstanding, the Parent