Question

Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss.

Zach Company's entry would include a:

a. debit to the investment account for $9,000

b. credit to cash for $9,000

c. credit to a loss account for $9,000

d. credit to the investment account for $9,000

Answer 1

Answer:

d. credit to the investment account for $9,000

Explanation:

Inequity method investor reports his proportionated share as an invesment in the balance sheet and any profit / loss will also be recorded in this account.

Zach company initialy recorded the share in Investment account and subsequest loss will also be adjusted in the this account with a credit entry because of debit nature of Investment account.

Loss Share = $20,000 x 45% = $9,000