Which of the following observations is consistent with the equity method of accounting?
A) Dividends declared by the investee are treated as income by the investor.
B) It is used when the investor lacks the ability to exercise significant influence over the investee.
C) It may be used in place of consolidation.
D) Its primary use is in reporting nonsubsidiary investments.

Question

Quizplus · Accepted Answer

The equity method of accounting is used to account for investments in which the investor has significant influence over the investee but does not have control. Under the equity method, the investor records its share of the investee's net income or loss as income or loss on its own income statement. Dividends declared by the investee are not treated as income by the investor until they are actually received.

Which of the Following Observations Is Consistent with the Equity