Crash Course in Accounting and Financial Statement Analysis, Second Edition (2024)
Equity Income in Affiliates
Many companies have influential, but noncontrolling investments in other firms (defined as ownership of 20% to 50%). They will account for income from their equity ownership as a proportional share of the investee’s earnings as “Equity in Affiliates” on their income statement.
Income from equity in affiliates is typically reported after-tax by companies, since those earnings had already been taxed on the income statement of the investees.
Company A owns 20% of Company B, which just reported net income of $10 million. What should Company A record in the “Income from Equity in Affiliates” line item?
15. Income from Equity in Affiliates
Solution
1:
Income in Affiliates = [% Investment in Affiliates] × [Affiliate Net Income]
Income in Affiliates = 20% × ($10 million – $2 million) = $20 million
Company A should record $20 million in the “Income from Equity in Affiliates” line item.
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