Question

Equity method mechanics with other comprehensive income

An investor company owns 40% of the outstanding common stock of an investee company, which allows the investor to exercise significant influence over the investee. The Equity Investment was reported at $650,000 as of the end of the previous year. During the year, the investor received dividends of $70,000 from the investee. The investee reports the following income statement for the year:

Revenues		$2,300,000
Expenses		1,800,000
Net income		500,000
Other comprehensive income		100,000
Comprehensive income		$600,000

a. How much equity income should the investor report in its net income (i.e., as part of the current year income statement)?

$Answer

b. What amount should the investor report for the Equity Investment in its balance sheet at the end of the year?

$Answer

Answer 1

a) Equity income to be reported = 500000*40% =	$ 200,000
b) Amount to be reported in the Balance sheet:
Beginning balance	$    500,000
Add: Comprehensive income (40%*$600,000)	$ 240,000
Less: Dividend received	$      50,000
Amount to be reported in the Balance sheet	$ 690,000