Equity Method and Asset Account

So are the only accounts that are affected during the EQ method just “total assets”, net income, and equity? However, you don’t add the current assets of the Sub to the parent right? None of the liability accounts either? Only thing you take from the Sub is their earnings and subtract out the dividends. And the only reason total assets is affected is because you have that additional line item of “investment account of Sub” right?


That’s quite the list. I’ll take a stab at it… For the equity method, the portion of the subsidiary’s equity you purchased (or net assets if you like), is added to the balance sheet as “investment in subsidiary x.” For the income statement, the portion of the subsidiary’s net income is added as “equity in income of x.” Done - no equity adjustments. As time goes on, the portion of the subsidiary’s net income adjusted for dividends, is added to the investment in subsidiary line of the balance sheet. Hope that helps. If not, Schweser has an example on page 135 in the blue box.