Section 2: 30–40%2E3
Equity Method Investments
Exam Insight
Equity method questions almost always involve either excess cost amortization or intercompany profit elimination. The AICPA trap: dividends received REDUCE the investment account - they don't create income. Candidates who debit cash and credit dividend income (instead of investment account) get this wrong. Also know the suspension rule: you stop recognizing losses when the investment reaches zero.
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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)