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Chapter 12: 17Q (page 610)

Explain how the investment account is affected by investee activities under the equity method.

Short Answer

Expert verified

Explain how the investment account is affected by investee activities under the equity method.

Step by step solution

01

Definition of investment account

An investment account is an account that is related to all types of the securities account.

02

Affect on investment account

As the investment account is adjusted with the changes made by the investee鈥檚 account, every increase or decrease takes place in the investee鈥檚 account. When the amount of the earnings increases or decreases, the investment account is also increases or decreases. Whenever investors receive their dividend, the investment account decreases. Hence, in this way, the investment account is affected by investee activities under the equity method.

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Most popular questions from this chapter

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

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