Section 2: 30–40%2E3
Equity Method Investments
Exam insight
Equity method questions almost always involve excess cost amortization or intercompany profit elimination. The AICPA trap: dividends received REDUCE the investment account, they aren't income. Candidates who debit cash and credit dividend income (instead of the investment account) miss this. Also know the suspension rule: you stop recognizing losses once the investment hits zero.
CPA Exam Lab is an independent study resource and is not affiliated with, endorsed by, or sponsored by the AICPA® or NASBA. Practice questions are original content created for study purposes. “CPA” is a registered trademark of the AICPA.
What AICPA wants you to know
- 1Apply the 20-50% presumption for significant influence and know the exceptions
- 2Compute the equity method investment account balance over time
- 3Record investee income/loss and dividends under the equity method
- 4Apply amortization of excess purchase price (including goodwill)
- 5Account for losses that exceed the investment balance (suspension of equity method)