Which of the following statements applying to the use of the equity method versus the cost method is true?
A)A parent company may incur a delay in closing its books while waiting for a subsidiary that it accounts for using the cost method to determine its income.
B)If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
C)The method used has no impact on consolidated financial statements.
D)An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.

Question

Which of the following statements applying to the use of the equity method versus the cost method is true?
A)​A parent company may incur a delay in closing its books while waiting for a subsidiary that it accounts for using the cost method to determine its income.
B)​If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
C)​The method used has no impact on consolidated financial statements.
D)​An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.

Quizplus · Accepted Answer

The method used (equity or cost) does not impact the consolidated financial statements because consolidation eliminates the investment account and replaces it with the subsidiary's assets and liabilities.

Which of the Following Statements Applying to the Use of the Equity