Question

The entry to convert from the initial value method to the equity method usually involves a debit to Investment in Subsidiary account and a credit to what account?Subsidiary's end of the year Retained EarningsParent's end of the year Retained EarningsSubsidiary's beginning of the year Retained EarningsParent's beginning of the year Retained EarningsNo entry is needed

Answer 1

Answer:

Parent's beginning of the year Retained Earnings

Explanation:

"The equity method is an accounting technique used by a company to record the profits earned through its investment in another company. With the equity method of accounting, the investor company reports the revenue earned by the other company on its income statement, in an amount proportional to the percentage of its equity investment in the other company.

When the investor has a significant influence over the operating and financial results of the investee, it can directly affect the value of the investor's investment. The investor records its initial investment in the second company's stock as an asset at historical cost. Under the equity method, the investment's value is periodically adjusted to reflect the changes in value due to the investor's share in the company's income or losses. Adjustments are also made when dividends are paid out to shareholders."

Reference: Tuovila, Alicia. “Equity Method Definition.” Investopedia, Investopedia, 8 Oct. 2019