When an investor appropriately applies the equity method, how should it account

Question

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI)?

Multiple Choice

A. The OCI would reduce the investment.

B. The OCI would not appear on the investor’s income statement but would be a component of comprehensive income.

C. The OCI would be ignored but shown in the investor’s notes to the financial statements.

D. Under the equity method, the investor only recognizes its share of investee’s income from continuing operations.

E. The OCI would increase the investment.

Explanation / Answer

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI)

So answer is b)  The OCI would not appear on the investor’s income statement but would be a component of comprehensive income.

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