What Is "One-Line Consolidation," and When Is It Used

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The Answer is If an investor's ownership is not greater than 50 percent, but the investor can exercise significant influence over operating and financial policies, the equity method, or one-line consolidation, is used. With this method, the investment account is used to reflect the investor's underlying book value of equity in the investee. Many of the mechanical adjustments that are required for consolidated financial statements are also required for a one-line consolidation-except that only the net effect of those adjustments is reported in the investment account rather than a consolidated reporting of all of the individual accounts actually involved. The events that must be recorded in the investment account for each reporting period are: (1) proportionate share of investee's income or loss for the period; (2) proportionate share of investee's cash dividend for the period; and (3) amortization of the amount of the cost of the investment that is different from the underlying book value acquired. The result is that one line on the balance sheet, the investment account, and one line on the income statement, the income from equity investment account, are reported as if consolidation had occurred.

What Is "One-Line Consolidation," and When Is It Used

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What Is "One-Line Consolidation," and When Is It Used

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Correct Answer:
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