How will the Equity method be recorded in both ABC & XYZ company? Example: The E

Question

How will the Equity method be recorded in both ABC & XYZ company? Example: The Equity Method ABC C ompany acquires significant influence over XYZ ompany by purchasing 20 percent of the common stock of the XYZ Company for $100,000, XYZ earns income of $60,000 and pays dividends of $20,000. * Recognition of income . This entry (equity accrual) is normally made as an adjusting entry at the end of the period · Ifthe investee reports aloss, the investorrecognizes its share of the loss and reduces the carrying amount of the investment by that amount Example: The Equity Method * Recognition of dividends Carrying amount of the investment

Explanation / Answer

In books of ABC company :

In books of XYZ co.

Date Account Debit credit a Investment in associates 100000 cash 100000 [being investment made in associates] b Cash 4000 Investment in associates 4000 [share of dividend income recorded 20000*20%] c Investment in associates 12000 share in net income of associates /Investment revenue 12000 [share of net income recorded 60000*.20]

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