Winston Corporation owns 25% of the voting stock of Tole Corporation and uses the equity method...
Winston Corporation owns 25% of the voting stock of Tole Corporation and uses the equity method in recording the investment. Tole Corporation reported a $50,000 net loss. Winston Corporation's entry would include a
a. debit to the cash account for $12,500.
b. debit to the investment account for $12,500.
c. debit to the investment account for $50,000.
d. credit to the investment account for $12,500.
Homework Answers
Equity method of investment recording is the method used where the initial cost of investment is changed according to the net income or loss earned by the investment . In the sense that where there is net income the investment value is increased and on the other hand where there is loss , the investment value is decreased .
Investment account being the asset account has a debit balance so , to reduce the balance due to net loss we should credit investment account.
Amount to be credited = 50,000 * 25 % voting rights
= $ 12500
Thus , the correct answer is - Option d. credit to investment account for $ 12500
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