英文台湾中兴大学金融系王之彦老师财务报表分析chap005.pptVIP

5; Equity method accounting—reports the parent’s investment in the subsidiary, and the?parent’s share of the subsidiary’s results, as line items in the parent’s financial statements (referred to as one-line consolidation) ? Note: Generally used for investments representing 20 to 50 percent of the voting stock of a company’s equity securities--main difference between consolidation and equity method accounting rests in the level of detail reported in financial statements ; Investment account: Initially recorded at acquisition cost Increased by % share of investee earnings Decreased by dividends received ; Income: Investor reports % share of investee company earnings as “equity earnings” in its income statement Dividends are reported as a reduction of the investment account, not as income ;Equity Method Mechanics;Equity Method Mechanics ;Investment balance = % Share of Investee Equity;The investment account represents the proportionate share of the stockholders’ equity of the investee company. Substantial assets and liabilities may, therefore, not be recorded on balance sheet unless the investee is consolidated. This can have important implications for the analysis of the investor company. Investment earnings (the proportionate share of the earnings of the investee company) should be distinguished from core operating earnings in the analysis of the earnings of the investor company. Investments accounted for under the equity method are reported at adjusted cost, not at market value. Substantial unrealized gains may, therefore, not be reflected in assets or stockholders’ equity. ;An investor should discontinue equity method accounting when the investment is reduced to zero (such as due to investee losses), and should not provide for additional losses unless the investor has guaranteed the obligations of the investee or is otherwise committed to providing further financial support to the investee. Equity method accounting only resumes once all cumulative def