The equity method of accounting for investments
a. requires a year-end adjustment to revalue the stock to lower of cost or market
b. requires the investment to be reported at its original cost
c. requires the investment be increased by the reported net income of the investee
d. requires the investment be increased by the dividends paid by the investee
To find the correct answer, let's analyze each option:
a. The equity method of accounting for investments does not require a year-end adjustment to revalue the stock to lower of cost or market. This option is incorrect.
b. The equity method does require the investment to be reported at its original cost. This means that the initial investment is recorded at its original cost and is not adjusted subsequently. This option is correct.
c. The equity method does require the investment to be increased by the reported net income of the investee. Under the equity method, the investor recognizes its share of the investee's net income as an increase in the investment account. This option is also correct.
d. The equity method does not require the investment to be increased by the dividends paid by the investee. Dividends received from the investee are not recognized as an increase in the investment account under the equity method. This option is incorrect.
Therefore, the correct answers are:
b. requires the investment to be reported at its original cost
c. requires the investment be increased by the reported net income of the investee