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