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Define the equity method and determine when it is used

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What is the equity method? When is it used? Identify the journal entries.

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Solution Summary

Equity method is defined. The uses are provided as well as identified in journal entries.

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Equity Method:

In the Equity method of accounting of investment, the investment is initially recorded at cost. The carrying of the investment increases and decreases with its share of income (after the date of investment), dividend declared by another company and so on.

The following factors should be considered in determining whether the Equity method is ...

Solution provided by:
Sonia Agarwal, CA
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
Recent Feedback
  • "I got this feedback and I wanted to know if you can explain it to me. I noticed something within your workings which I believe is incorrect.  It looks like you've mistaken the Debt ratio for the Equity Multiplier.  You've done a calculation to determine Return on Equity (ROE) but if you take a look at the ratios provided for us you'll see ROE listed on the bottom line already.  You can use ROE, Profit Margin and Total Asset Turnover to figure out the Equity Multiplier amount.  Equity multiplier is not provided for us and we need to calculate it.  I really hope this is helpful to you.  "
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