The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. Firms that grow or diversify by acquiring minority ownership positions in other businesses will often show a
A)addition to retained earnings for distributed earnings.
B)addition to net income for distributed earnings.
C)subtraction from net income for equity in undistributed earnings.
D)addition to net income for equity in undistributed earnings.
E)subtraction from net income for distributed earnings.

Question

Quizplus · Accepted Answer

Firms that acquire minority ownership positions in other businesses often use the equity method, where they subtract from net income the equity in undistributed earnings of the investee.

The Extent to Which a Firm Adjusts Net Income for Changes