Question

When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition: Group of answer choices Increases the investment account and reduces investment revenue. Increases the investment account and increases investment revenue. Reduces the investment account and increases investment revenue. Reduces the investment account and reduces investment revenue.

Answer 1

d. Reduces the investment account and reduces investment revenue.

Step-by-step explanation:

When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition reduces the investment account and reduces investment revenue.

The amortization of additional depreciation reduces the investment account in the investee as well as reduces the income recognized from investee.

In the equity method, an investor amortizes, or expenses, the additional over book value paid for its portion of the investee's tangible non current assets. For non current assets, book value is purchase price minus accumulated depreciation. The investor amortizes the amount above book value it allocates to investee assets.