Question

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

Answer 1

The partial equity method requires adjustments to the investment account for the parent company's share of the subsidiary's net income, which increases the investment balance, and received dividends, which decrease it.

Step-by-step explanation:

Under the partial equity method, when a subsidiary maintains its incorporation after an acquisition, certain adjustments are made to the balance of the investment account. The purchasing company records its investment in the subsidiary at cost and subsequently adjusts this balance for its share of the subsidiary's net income, dividends, and other comprehensive income or loss. The share of the subsidiary's net income increases the investment account, while received dividends decrease it. This method provides an import to income in the current account through recognition of dividends as an increase in equity income.