[Oimie]

NINJA Question –

1. Is equity in earnings considered income?

2. Does equity in earnings affect net income?

Thank you.

FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016

[Anonymous]

I've been digging around looking for the answer for this and usually abandon it. I mean, they keep referring to it as income, but how can it be on the income statement, this would mean you'd be recognizing the equity in earnings as income and then doing what with the dividends when they were paid – treating them as an expense – ugh.

I get that the entry is:

Investment in X

Equity in Earnings

Assuming it works in reverse when there's a loss (but i don't see any examples of crediting the investment account for a loss, only for dividends when paid.)

So what is the Equity in Earnings account, is it an income statement account, do you credit losses to it and the dividends received from the investee? Then there's all the Deferred tax stuff but I'm not even going to go there now. Plus if it's there doesn't that mean you have to close it out at the end of the year? To where?

Anyway, according to this example from PWC the equity in earnings does appear on the two step income statement in this manner:

Income statement

Income (loss) from

continuing operations

before income tax

expense

Income tax expense

Equity in earnings of

unconsolidated entities

Income (loss) from

continuing operations

Discontinued operations

Income (loss) before

extraordinary items and

cumulative effects of

changes in accounting

principles

Extraordinary item, net

Cumulative effects of

changes in accounting

principles

Net income (loss)

Less: Net income (loss)

attributable to

noncontrolling interests

Net income (loss)

attributable to parent

https://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc-guide-financial-statement-presentation-2014.pdf

[Author]

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