[that0neguy]

I’m interested and having difficulty finding the literature if you have an investment with less than control, but significant influence (20-50%) that has negative equity how the affiliated entity would account for that.

(1) Let’s assume you have two people 50% equity each contributed $25k. Total equity $50k.
(2) They pay $60k to get business going and expense all $60k
(3) Would the affiliate entities show an investment in affiliate of $0 (cannot exceed their basis) or would they show (-$5k)?

Would it depend on how the operating agreement is written and whether they have obligations that are outside of the entity? Because if they entity went bankrupt and was LLC, they technically wouldn’t necessarily be obligated to contribute to make A/P creditors whole.

Does anyone know? Thanks.

[Tim]

After some googling, once you hit $0 you can no longer account for the investment using the equity method.

[that0neguy]

What method would you use? Cost? Consolidation?

[Author]

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