Under the equity method, where is the Investments in Equity Interests shown on the balance sheet?

Under the equity method, where is the Investments in Equity Interests shown on the balance sheet?

• A. Asset
• B. Liability
• C. Equity
• D. Income

Answer: (A)

Under the equity method, the investment is shown as an asset on the balance sheet. This reflects the investor’s financial claim to the investee’s net assets and the expectation of future benefits, such as the investor’s share of earnings and any dividends received. The investment account is initially recorded at cost, then increased by the investor’s share of the investee’s net income and decreased by the investor’s share of losses and by dividends received. While the income effect appears on the income statement as equity in earnings of the investee, the corresponding balance sheet presentation remains an asset.

Under the equity method, the investment is shown as an asset on the balance sheet. This reflects the investor’s financial claim to the investee’s net assets and the expectation of future benefits, such as the investor’s share of earnings and any dividends received. The investment account is initially recorded at cost, then increased by the investor’s share of the investee’s net income and decreased by the investor’s share of losses and by dividends received. While the income effect appears on the income statement as equity in earnings of the investee, the corresponding balance sheet presentation remains an asset.