Question: a. Define the equity method b. Use the following example to describe the equity method Presume that Company A bought 30% of Company Bs outstanding

a. Define the equity method

b. Use the following example to describe the equity method

Presume that

  • Company A bought 30% of Company Bs outstanding common stocks at $400,000 (cash) on 01/01/2020
  • During 2020, Company B earned net income of $200,000 and paid dividends of $40,000

Provide the journal entries for this equity investment in fiscal year 2020

What is the balance for this equity investment on 12/31/2020?

  1. Explain why the accounting numbers obtained using the equity method are misleading

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