Question

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the:_________.
a. investor sells the investment
b. investee declares a dividend
c. investee pays a dividend
d. earnings are reported by the investee in its financial statements

Answer 1

Answer: Earnings are reported by the investee in its financial statements

Explanation:

Equity method is when investments are being treated in associate companies and it is usually applied in cases whereby an investor entity holds about twenty to fifty percent of the associate company's voting stock. Due to this reason, it has a strong say in the associate company's management.

Under the equity method of accounting for investments, an investor recognizes its share of the earning in the period in which the earnings are reported by the investee in its financial statements.