When an equity method investment account is reduced to a zero balanceThe investor should establish a negative investment account balance for any future losses reported by the investee.The investor should discontinue using the equity method until the investee begins paying dividends.Future losses are reported as unusual items in the investor’s income statement.The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.

Investment: It refers to the process of using the currently held excess cash to earn profitable…

Answered: When an equity method investment…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 12QE: Financial accounting rules require firms to assess whether they will recover carrying amounts of...

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When an equity method investment account is reduced to a zero balance

The investor should establish a negative investment account balance for any future losses reported by the investee.
The investor should discontinue using the equity method until the investee begins paying dividends.
Future losses are reported as unusual items in the investor’s income statement.
The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.

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