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What are the equity method journal entries

What are the equity method journal entries typically recorded by a parent company? Provide examples in your response.

Solution Preview

The equity method is used when a parent owns "substantial influence" in another firm but does not "control" them. In US GAAP, substantial influence is more than 20% but less than 50% of the stock of the subsidiary.

When the investment is made:
..................................................................................DR(CR) < --- mean DEBIT (CREDIT)
Equity method investment in subsidiary ............XX < --- means some dollar amount
Cash...........................................................................(XX) < --- matching the dollar debit above

When the subsidiary reports earnings or losses, the investment account is adjust for the parent's share of the earnings and losses:
..................................................................................DR(CR)
Equity method investment in subsidiary ..............XX
Share in equity method subsidiary profits..........(XX)

Share in equity ...

Solution Summary

Your tutorials gives you all the potential journal entries (even the rare one), and then gives you an example with dollar amounts to illustrate how this work.

$2.19