Chapter 1, Problem 5P

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

  a.    The investor should establish a negative investment account balance for any future losses reported by the investee.

  b.    The investor should discontinue using the equity method until the investee begins paying dividends.

  c.    Future losses are reported as unusual items in the investor’s income statement.

  d.    The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.