{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/323/10/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"323","topic_title":"Investments—Equity Method and Joint Ventures","subtopic":"323-10","subtopic_title":"Overall","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"323-10-55-1","para":"55-1","html":"
The following Cases illustrate the application of the characteristics described in paragraphs 323-10-15-13 and 323-10-15-15 to various investments:
  1. a
    Subordination substantially similar to common stock (Case A)
  2. b
    Subordination not substantially similar to common stock (Case B)
  3. c
    Investment expected to participate in risks and rewards of ownership (Case C)
  4. d
    Investment not expected to participate in risks and rewards of ownership (Case D)
  5. e
    Investee not obligated to transfer substantive value (Case E)
  6. f
    Investee obligated to transfer substantive value (Case F).
","snippet":"The following Cases illustrate the application of the characteristics described in paragraphs 323-10-15-13 and 323-10-15-15 to various investments:\n(a) Subordination substantially similar to common stock (Case A)\n(b) Sub…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8a079636ebb0c2e8d3e910d32bbec2d76e63460cd630ba4fe08b22b6d685e904","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-2","para":"55-2","html":"
Each Case provides sufficient information to reach a conclusion about whether the investment contemplated in the Case has the characteristic of in-substance common stock being demonstrated in the Case. In each Case, assume that the investor is performing the analysis because it has determined that it is not required to consolidate the investee under Subtopic 810-10, that it has the ability to exercise significant influence over the operating and financial policies of the investee, and that its investment does not meet the definition of a derivative instrument under Subtopic 815-10.
","snippet":"Each Case provides sufficient information to reach a conclusion about whether the investment contemplated in the Case has the characteristic of in-substance common stock being demonstrated in the Case. In each Case, assu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c6775f2245a9d9ec52a5be1bb5685dc1ea500113ba086b7c1aa5442768668176","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-3","para":"55-3","html":"
Investor organized Investee and acquired all of the common stock of Investee on January 1, 2003. On January 1, 2004, Investee sells 100,000 shares of preferred stock to a group of investors in exchange for $10,000,000 ($100 par value; liquidation preference of $100 per share). The fair value of the entity's common stock is approximately $100,000 on January 1, 2004.
","snippet":"Investor organized Investee and acquired all of the common stock of Investee on January 1, 2003. On January 1, 2004, Investee sells 100,000 shares of preferred stock to a group of investors in exchange for $10,000,000 ($…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d6ddbc0ba33f8c593ef41973c03d01ebb8041140e2f4a094ea9ecc38d1fdc364","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-4","para":"55-4","html":"
In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. However, the fair value of the common stock ($100,000), if compared with the fair value of the preferred stock, indicates that Investee has little or no common stock from a fair value perspective. An investor should therefore conclude that the liquidation preference is not substantive and that the subordination characteristics of its preferred stock investment are substantially similar to the subordination characteristics of Investee's common stock. The investor should also evaluate whether the preferred stock has the characteristics in paragraph 323-10-15-13(b) through 15-13(c), and paragraphs
323-10-15-14 through 15-15
(if necessary) to reach a conclusion about whether the preferred stock is in-substance common stock.
","snippet":"In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. However, the fair value of the common stock ($100,000), if compared with the fair value of the preferred stock, indicates…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fdf898b5825c4a34d5f82e891b629c56382fc337fbde752a08d2a52f4a5a9511","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-5","para":"55-5","html":"
Assume the same facts and circumstances as in Case A, except that the fair value of Investee's common stock is approximately $15,000,000 on January 1, 2004.
","snippet":"Assume the same facts and circumstances as in Case A, except that the fair value of Investee's common stock is approximately $15,000,000 on January 1, 2004.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:56f46da20c357a683043d8f0b592f0f9124dd2e5386b18ebd2ceaf4dd5894fad","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-6","para":"55-6","html":"
In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. In addition, Investee has adequate subordinated equity from a fair value perspective (more than little or no subordinated equity) to indicate that the liquidation preference is substantive. An investor therefore should conclude that the subordination characteristics of its preferred stock investment are not substantially similar to the subordination characteristics of Investee's common stock. Accordingly, the preferred stock investment is not in-substance common stock. Evaluation of the characteristics in paragraph 323-10-15-13(b) through 15-13(c) and paragraphs
323-10-15-14 through 15-15
is not required.
","snippet":"In this Case, the stated liquidation preference is equal to the fair value of the preferred stock. In addition, Investee has adequate subordinated equity from a fair value perspective (more than little or no subordinated…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:027e2062f03cff36fb175fae2ef77563d1d0cf4a082fe4bdd8586619dc003ee8","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-7","para":"55-7","html":"
Investor purchases a warrant in Investee for $2,003,900 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $1.00 per share (total exercise price of $100,000) on or before June 30, 20X5; the warrant does not participate in dividends. The fair value of the common stock is approximately $21.00 per share. The warrant is exercisable at any time. Investor does not expect Investee to declare dividends before exercise.
","snippet":"Investor purchases a warrant in Investee for $2,003,900 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $1.00 per share (total exercise price of …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:872dc4cbe2616a4ebe6b89c9b75453d3128a3600ae12e9f5010db96531e2f54d","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-8","para":"55-8","html":"
Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evaluate the extent to which the warrant is expected to participate with the common shareholders in Investee's earnings (and losses), Investor should evaluate whether the warrant allows Investor to currently participate in dividends on a basis substantially similar to common stock. In this Case, Investor does not participate in dividends. Investor, however, can exercise the warrant (convert into common stock) at any time, thereby enabling Investor to participate in Investee's earnings (and losses) on an equivalent basis to common stock. Because Investor does not expect Investee to declare dividends before exercise, Investor participates in Investee's earnings in a manner substantially similar to common stock. In addition, warrants that are exercisable into common stock are designed to participate equally with the common shareholders in increases in the Investee's fair value. Therefore, the warrant participates in Investee's capital appreciation.
","snippet":"Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evalua…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4668984125f5cba1140fce79cf6dfe40eef277dd331d948aec50bff0cd6edcac","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-9","para":"55-9","html":"
Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. In this Case, Investor could compare the current fair value of Investee's common stock with the fair value of the warrant (on an equivalent unit basis) to determine whether the warrant is exposed to capital depreciation in a manner that is substantially similar to the entity's common stock. The current fair value of the Investee's common stock of $21.00 is substantially similar to the current fair value of each warrant of $20.04 (on an equivalent unit basis). Therefore, the warrant's expected participation in Investee's capital depreciation is substantially similar to the common shareholders' participation. This comparison of fair values is different from the paragraph 323-10-15-15 evaluation that is performed (if necessary) to determine whether the future changes in fair value of the investment are expected to vary directly with the changes in the fair value of the entity's common stock.
","snippet":"Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1b1097080257de23b2d1f85c3ef761594bb32405fd9f106eb1658ab9484d8d7a","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-10","para":"55-10","html":"
Accordingly, Investor should conclude that, before exercise, the warrants are expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. Investor should also evaluate whether the warrant has the characteristics in paragraph 323-10-15-13(a) and 323-10-15-13(c) and paragraphs
323-10-15-14 through 15-15
(if necessary) to reach a conclusion about whether the warrant is in-substance common stock.
","snippet":"Accordingly, Investor should conclude that, before exercise, the warrants are expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially simi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9dd32250a492a980d13a69737f0d7f2233dab4f66153ed61498e3e035e42d78b","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-11","para":"55-11","html":"
Investor purchases a warrant in Investee for $288,820 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $21.00 per share (total exercise price of $2,100,000) on or before June 30, 20X5; the warrant does not participate in dividends. The fair value of the common stock is approximately $21.00 per share. The warrant is exercisable at any time. Investor does not expect Investee to declare dividends before exercise.
","snippet":"Investor purchases a warrant in Investee for $288,820 on July 1, 20X4. The warrant enables Investor to acquire 100,000 shares of Investee's common stock at an exercise price of $21.00 per share (total exercise price of $…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f3f0f7b31c00968930c78b6231622e62822965c549f316b3bad2920b537b18bb","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-12","para":"55-12","html":"
Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evaluate the extent to which the warrant is expected to participate with the common shareholders in Investee's earnings (and losses), Investor should evaluate whether the warrant allows Investor to currently participate in dividends on a basis substantially similar to common stock. In this Case, Investor does not participate in dividends. Investor, however, can exercise the warrant (convert into common stock) at any time, thereby enabling Investor to participate in Investee's earnings (and losses) on an equivalent basis to common stock. Because Investor does not expect Investee to declare dividends before exercise, Investor participates in Investee's earnings in a manner substantially similar to common stock. In addition, warrants that are exercisable into common stock are designed to participate equally with the common shareholders in increases in Investee's fair value. Therefore, the warrant participates in Investee's capital appreciation.
","snippet":"Investor should evaluate whether the warrant is expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock. To evalua…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:815733aa17578a1261b2a785a1d9b942239613bf65a7ded468d7ad56a25b9829","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-13","para":"55-13","html":"
Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. In this Case, Investor could compare the current fair value of Investee's common stock with the current fair value of the warrant (on an equivalent unit basis) to determine whether the warrant is exposed to capital depreciation in a manner that is substantially similar to the entity's common stock. The current fair value of the Investee's common stock of $21.00 is substantially different from the current fair value of each warrant of $2.88 (on an equivalent unit basis). Therefore, the warrant's expected participation in Investee's capital depreciation is substantially different from the common shareholders' participation. This comparison of fair values is different from the paragraph 323-10-15-15 evaluation that is performed (if necessary) to determine whether the future changes in fair value of the investment are expected to vary directly with the changes in the fair value of the entity's common stock.
","snippet":"Investor should also evaluate whether the warrant is expected to participate in Investee's capital depreciation in a manner substantially similar to common stock. An investor has alternatives for making this evaluation. …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:29aac1a422607405b56d03a14439c1f679fd5f686f5bed93e5a2735ffc9f84ca","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-14","para":"55-14","html":"
Accordingly, Investor should conclude that, before exercise, the warrants are not expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially similar to common stock and, accordingly, the warrants are not in-substance common stock. Evaluation of the characteristics in paragraph 323-10-15-13(a) and 323-10-15-13(c) and paragraphs
323-10-15-14 through 15-15
is not required.
","snippet":"Accordingly, Investor should conclude that, before exercise, the warrants are not expected to participate in Investee's earnings (and losses) and capital appreciation (and depreciation) in a manner that is substantially …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dab422ecda6b5dda0e8e2936f7409d4f70c419b6f486bb73634fcf01b412dc5f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-15","para":"55-15","html":"
Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $10,000 at the option of the Investor. The common shareholders do not have a similar redemption feature.
","snippet":"Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $10,000 at the option of the Investor. …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c99c7e6c4ca34a8f1e91362770f1eaddcadfa16f1f4715ef4abc175b395599c4","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-16","para":"55-16","html":"
Investor should evaluate whether exercise of the $10,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In this Case, the $10,000 redemption feature is not substantive. Accordingly, Investor should conclude that redeemable convertible preferred stock does not require Investee to transfer substantive value to Investor and that common shareholders do not participate. Investor should also evaluate whether the redeemable convertible preferred stock has the characteristics in paragraph 323-10-15-13(a) through 15-13(b) and paragraphs
323-10-15-14 through 15-15
(if necessary) to reach a conclusion about whether the redeemable convertible preferred stock is in-substance common stock.
","snippet":"Investor should evaluate whether exercise of the $10,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In this…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:df1ee1e537a3df41623589f497c1f8a68fb988fe58ce0ebba8c1a44729a21805","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-17","para":"55-17","html":"
Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $2,000,000 at the option of the Investor. The common shareholders do not have a similar redemption feature. Investor expects that Investee will have the ability to pay the redemption amount.
","snippet":"Investor purchases redeemable convertible preferred stock in Investee for $2,000,000. The investment can be (a) converted into common stock valued at $2,000,000 or (b) redeemed for $2,000,000 at the option of the Investo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4d0848e6c75dc27de544d8da3ae91d45c9bb9df7aa81f778a69fe44c57dbf77f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-18","para":"55-18","html":"
Investor should evaluate whether exercise of the $2,000,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In this Case, the $2,000,000 redemption feature is substantive because the redemption amount is substantive as compared to the fair value of the investment and, based on Investor's expectation as of the date that the investment was made, Investee has the ability to pay the redemption amount. Accordingly, Investor shall conclude that redeemable convertible preferred stock requires Investee to transfer substantive value to Investor and that common shareholders do not participate. Accordingly, the redeemable convertible preferred stock is not in-substance common stock. Evaluation of the characteristics in paragraph 323-10-15-13(a) through 15-13(b) and paragraphs
323-10-15-14 through 15-15
is not required.
","snippet":"Investor should evaluate whether exercise of the $2,000,000 redemption feature obligates Investee to transfer substantive value to Investor and whether the common shareholders do not participate in a similar manner. In t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:85fc9e2db16e3ca392ca528927f249edde2090157edeed4f7c1febe30cdb454d","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-19","para":"55-19","html":"
This Example illustrates the guidance in paragraphs 323-10-25-3 and 323-10-30-3 for share-based compensation by an investor granted to employees of an equity method investee. This Example is equally applicable to share-based awards granted by an investor to nonemployees that provide goods or services to an equity method investee that are used or consumed in the investee's operations.
","snippet":"This Example illustrates the guidance in paragraphs 323-10-25-3 and 323-10-30-3 for share-based compensation by an investor granted to employees of an equity method investee. This Example is equally applicable to share-b…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ce743f7f367bfb7122c0ae8bcee3f4a75111bde3b8393aa0ea63bfe60fe26fc2","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-20","para":"55-20","html":"
Entity A owns a 40 percent interest in Entity B and accounts for its investment under the equity method. On January 1, 20X1, Entity A grants 10,000 stock options (in the stock of Entity A) to employees of Entity B. The stock options cliff-vest in three years. If an employee of Entity B fails to vest in a stock option, the option is returned to Entity A (that is, Entity B does not retain the underlying stock). The owners of the remaining 60 percent interest in Entity B have not shared in the funding of the stock options granted to employees of Entity B on any basis and Entity A was not obligated to grant the stock options under any preexisting agreement with Entity B or the other investors. Entity B will capitalize the share-based compensation costs recognized over the first year of the three-year vesting period as part of the cost of an internally constructed fixed asset (the internally constructed fixed asset will be completed on December 31, 20X1).
","snippet":"Entity A owns a 40 percent interest in Entity B and accounts for its investment under the equity method. On January 1, 20X1, Entity A grants 10,000 stock options (in the stock of Entity A) to employees of Entity B. The s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e5f2333a073e23ae782e8b43871258163f1481cda39bddb9878e760dcdf7d5e","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-21","para":"55-21","html":"
Before granting the stock options, Entity A's investment balance is $800,000, and the book value of Entity B's net assets equals $2,000,000. Entity B will not begin depreciating the internally constructed fixed asset until it is complete and ready for its intended use and, therefore, no related depreciation expense (or compensation expense relating to the stock options) will be recognized between January 1, 20X1, and December 31, 20X1. For the years ending December 31, 20X2, and December 31, 20X3, Entity B will recognize depreciation expense (on the internally constructed fixed asset) and compensation expense (for the cost of the stock options relating to Years 2 and 3 of the vesting period). After recognizing those expenses, Entity B has net income of $200,000 for the fiscal years ending December 31, 20X1, December 31, 20X2, and December 31, 20X3.
","snippet":"Before granting the stock options, Entity A's investment balance is $800,000, and the book value of Entity B's net assets equals $2,000,000. Entity B will not begin depreciating the internally constructed fixed asset unt…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:747723916d64387f1ad9d4c0550e13e50be2c4f9bf259301d6d1997380526b8f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-22","para":"55-22","html":"
Entity C also owns a 40 percent interest in Entity B. On January 1, 20X1, before granting the stock options, Entity C's investment balance is $800,000.
","snippet":"Entity C also owns a 40 percent interest in Entity B. On January 1, 20X1, before granting the stock options, Entity C's investment balance is $800,000.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e43201629ce25b4b9a786a7f33865605e1095ea733bf00f5299945d08f7e9f9b","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-23","para":"55-23","html":"
Assume that the fair value of the stock options granted by Entity A to employees of Entity B is $120,000 on January 1, 20X1. Under Topic 718, the fair value of share-based compensation should be measured at the grant date. This Example assumes that the stock options issued are classified as equity and ignores the effect of forfeitures.
","snippet":"Assume that the fair value of the stock options granted by Entity A to employees of Entity B is $120,000 on January 1, 20X1. Under Topic 718, the fair value of share-based compensation should be measured at the grant dat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c7e847369a5eceabcd8fe1e968746531292a19e0794890fbfe0bf520d4a22cab","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-24","para":"55-24","html":"
Entity A would make the following journal entries.
","snippet":"Entity A would make the following journal entries.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c1376a9f8a450f2aa76ea36081c936abdb0d9ab9b09f281cf77698eb9b727f82","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-25","para":"55-25","html":"
A rollforward of Entity B's net assets and a reconciliation to Entity A's and Entity C's ending investment accounts follows.
","snippet":"A rollforward of Entity B's net assets and a reconciliation to Entity A's and Entity C's ending investment accounts follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b47fdad95d62f3a714c4b012f9ef33d0552bac9e4d571e3fcecc9db0cfd6b791","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-26","para":"55-26","html":"
A summary of the calculation of share-based compensation cost by year follows.
","snippet":"A summary of the calculation of share-based compensation cost by year follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bf5451bc0d830aab18ebae5e735e5e323416717c8df9c9b73f52dd3bd7feed24","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-27","para":"55-27","html":"
The following Cases illustrate how eliminations of intra-entity profits might be made in accordance with paragraph 323-10-35-7. Both Cases assume that an investor owns 30 percent of the common stock of an investee, the investment is accounted for under the equity method, the income tax rate to both the investor and the investee is 40 percent, the inventory is a good that is an output of the entity's ordinary activities, and the contract is with a customer that is within the scope of Topic 606 on revenue from contracts with customers:
  1. a
    Investor sells inventory downstream to investee (Case A)
  2. b
    Investee sells inventory upstream to investor (Case B).
","snippet":"The following Cases illustrate how eliminations of intra-entity profits might be made in accordance with paragraph 323-10-35-7. Both Cases assume that an investor owns 30 percent of the common stock of an investee, the i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:85adc565da96cfec11de52bd6f51d6a382c8caed9f255741ad25a1348094db5b","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-28","para":"55-28","html":"
Assume an investor sells inventory items to the investee (downstream). At the investee's balance sheet date, the investee holds inventory for which the investor has recorded a gross profit of $100,000. The investor's net income would be reduced $18,000 to reflect a $30,000 reduction in gross profit and a $12,000 reduction in income tax expense. The elimination of intra-entity profit might be reflected in the investor's balance sheet in various ways. The income statement and balance sheet presentations will depend on what is the most meaningful in the circumstances.
","snippet":"Assume an investor sells inventory items to the investee (downstream). At the investee's balance sheet date, the investee holds inventory for which the investor has recorded a gross profit of $100,000. The investor's net…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:98770a312d91a1f5c6a59f49d6faf7c6f3094f592a09e5aa4ca3f54372b6a45d","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-29","para":"55-29","html":"
Assume an investee sells inventory items to the investor (upstream). At the investor's balance sheet date, the investor holds inventory for which the investee has recorded a gross profit of $100,000. In computing the investor's equity pickup, $60,000 ($100,000 less 40 percent of income tax) would be deducted from the investee's net income and $18,000 (the investor's share of the intra-entity gross profit after income tax) would thereby be eliminated from the investor's equity income. Usually, the investor's investment account would also reflect the $18,000 intra-entity profit elimination, but the elimination might also be reflected in various other ways; for example, the investor's inventory might be reduced $18,000.
","snippet":"Assume an investee sells inventory items to the investor (upstream). At the investor's balance sheet date, the investor holds inventory for which the investee has recorded a gross profit of $100,000. In computing the inv…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5e9f30ed79d06d39e66f4605c14715900865bcdec943bba1bd389b10afdfe1e","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-30","para":"55-30","html":"
This Example illustrates the application of paragraph 323-10-35-24 to an investment involving all of the following circumstances:
  1. a
    Investor owns 40 percent of the outstanding common stock of Investee.
  2. b
    The common stock investment has been reduced to zero at the beginning of 20X1 because of previous losses.
  3. c
    Investor also has done both of the following:
    1. 1
      Invested $100 in redeemable preferred stock (that meets the definition of debt security and is classified as an available-for-sale debt security) of Investee (40 percent of the outstanding preferred stock of Investee)
    2. 2
      Extended $100 in loans to Investee (which represent 40 percent of all loans extended to Investee).
  4. d
    Investor is not obligated to provide any additional funding to Investee.
","snippet":"This Example illustrates the application of paragraph 323-10-35-24 to an investment involving all of the following circumstances:\n(a) Investor owns 40 percent of the outstanding common stock of Investee.\n(b) The common s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a3d2fb4f829ba9ce1104d32a450e70e1ddb7c815383b470ba81cdf4c2ea0e06","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-31","para":"55-31","html":"
In accordance with paragraphs 323-10-35-7 and 323-10-35-16, Investee's operating income and losses in the following table have been adjusted for intra-entity interest on the loan and dividends received or receivable on the preferred stock. As of the beginning of year 20X1, the carrying value of Investor's total combined investment in Investee is $200, as follows.
","snippet":"In accordance with paragraphs 323-10-35-7 and 323-10-35-16, Investee's operating income and losses in the following table have been adjusted for intra-entity interest on the loan and dividends received or receivable on t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5765afdc7abb6da33ae17068878a38e9645cd07d8d897e51dc1af3c49ad2552e","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-32","para":"55-32","html":"
Assume the following facts for years 20X1 through 20X7.
","snippet":"Assume the following facts for years 20X1 through 20X7.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aecb499567293bbf59d31be8b71e336652939ba14d928c42e55699147aeff8b0","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-33","para":"55-33","html":"
Following are the steps Investor would follow in applying the equity method of accounting to its investment in Investee during the years 20X1 through 20X7.
","snippet":"Following are the steps Investor would follow in applying the equity method of accounting to its investment in Investee during the years 20X1 through 20X7.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e6213516b07bac34752464195c7d093aefa393437546958ea96a53cfaeb31be0","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-34","para":"55-34","html":"
Investor would make all of the following entries in 20X1:
  1. a
    In accordance with this Subtopic, record the equity method loss (40% × $200 = $80) to the cost basis of the preferred stock (the next level of capital) at the time that the common stock investment becomes zero.
    • Equity method loss $80 Preferred stock investment $80
  2. b
    In accordance with Subtopic 326-20 on financial instruments measured at amortized cost, record an allowance for credit losses on the loan.
    • Credit loss expense $5 Allowance for credit losses $5
  3. c
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount after entry [a] of $20, equals $70 unrealized gain).
    • Preferred stock investment $70 Unrealized gain—other comprehensive income $70
","snippet":"Investor would make all of the following entries in 20X1:\n(a) In accordance with this Subtopic, record the equity method loss (40% × $200 = $80) to the cost basis of the preferred stock (the next level of capital) at the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:49b343d7f0805c57cc0be469bc69929e16f28f709ca7a68d292e4341a7a80f3a","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-35","para":"55-35","html":"
In 20X1, the total profit-and-loss charge is $85 ($80 for the equity method loss and $5 for the loan). Other comprehensive income is credited $70 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is reduced to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment).
","snippet":"In 20X1, the total profit-and-loss charge is $85 ($80 for the equity method loss and $5 for the loan). Other comprehensive income is credited $70 for the preferred stock investment. The carrying amount of the total combi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b4a0abc722554715401b7b3ba435bb942c89991e441e093544cee0ef9267dfb0","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-36","para":"55-36","html":"
Investor would make both of the following entries in 20X2:
  1. a
    In accordance with this Subtopic, record the equity method loss (40% × $400 = $160) to the adjusted basis of the preferred stock of $20 and, because the adjusted basis of the preferred stock will then be reduced to zero, record the remaining equity method loss to the adjusted basis of the loan (the next level of capital). The total equity method loss recorded would be limited, however, to the adjusted basis of the total combined investment in Investee of $115; therefore, $45 of equity method losses are unreported.
    • Equity method loss $115 Preferred stock investment $20 Loan 95
  2. b
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount after entry [a] of $70, equals $20 unrealized gain).
    • Preferred stock investment $20 Unrealized gain—other comprehensive income $20
","snippet":"Investor would make both of the following entries in 20X2:\n(a) In accordance with this Subtopic, record the equity method loss (40% × $400 = $160) to the adjusted basis of the preferred stock of $20 and, because the adju…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ab715a76b72ce63d4426412145864b23ebd713535b8fe0e12a6f7a8b1fdca7fb","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-37","para":"55-37","html":"
In 20X2, the total profit-and-loss charge is $115 (equity method loss). Other comprehensive income is credited $20 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $90 ($0 for the common stock investment, $0 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $90. The adjusted basis of the total combined investment in Investee is reduced to $0 ($0 for the common stock investment, $0 for the loan, and $0 for the preferred stock investment).
","snippet":"In 20X2, the total profit-and-loss charge is $115 (equity method loss). Other comprehensive income is credited $20 for the preferred stock investment. The carrying amount of the total combined investment in Investee is r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a834e6435c168ccfd06fd1ad8c2f7e12ac15f5b6b7945a0f49eab2fe2c9c503f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-38","para":"55-38","html":"
In 20X3, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X3:
  1. a
    Because the adjusted basis of the loan was reduced to zero in 20X2 as a result of applying equity method losses to the loan, no entry is needed to reflect the Subtopic 326-20 reduction in carrying amount from $95 to $60.
  2. b
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (fair value of $50 less the carrying amount of $90 equals $40 unrealized loss).
    • Unrealized loss—other comprehensive income $40 Preferred stock investment $40
","snippet":"In 20X3, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X3:\n(a) Because the adjusted basis of the loan was reduced to zero in 20X2 as a result of applying…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fcfba2b7c92062389ed25795f55823106e47f4af5fa5b9d5f037c67d8ffb3769","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-39","para":"55-39","html":"
In 20X3, other comprehensive income is debited $40 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $50 ($0 for the common stock investment, $0 for the loan, and $50 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $50. The adjusted basis of the total combined investment in Investee remains $0.
","snippet":"In 20X3, other comprehensive income is debited $40 for the preferred stock investment. The carrying amount of the total combined investment in Investee is reduced to $50 ($0 for the common stock investment, $0 for the lo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c313cf6f11e378ae216c544836fecdc801a15871c3425bda2534e6fe482bfd20","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-40","para":"55-40","html":"
Investor would make both of the following entries in 20X4:
  1. a
    In accordance with this Subtopic, record the equity method income (40% × $400 = $160). However, in accordance with this Subtopic, Investor resumes applying the equity method only after its share of that income equals the unreported equity method losses of $45. Therefore, the equity method income to be reported for the period is $115 ($160-$45). The adjusted bases of the other investments are restored in the reverse order of the application of the equity method losses (loan first, then preferred stock).
    • Loan $95 Preferred stock investment 20 Equity method income $115
  2. b
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount of $70 equals $20 unrealized gain).
    • Preferred stock investment $20 Unrealized gain—other comprehensive income $20
","snippet":"Investor would make both of the following entries in 20X4:\n(a) In accordance with this Subtopic, record the equity method income (40% × $400 = $160). However, in accordance with this Subtopic, Investor resumes applying t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7f7956720897cb279632ac68eb9ea662e872551c31213175cf4cc5446dea0a77","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-41","para":"55-41","html":"
In 20X4, the total profit-and-loss credit is $115 (the equity method income after Investor's share of unreported equity method losses of $45 in 20X2). Other comprehensive income is credited $20 for the preferred stock investment. The carrying amount of the total combined investment in Investee is increased to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is increased to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment).
","snippet":"In 20X4, the total profit-and-loss credit is $115 (the equity method income after Investor's share of unreported equity method losses of $45 in 20X2). Other comprehensive income is credited $20 for the preferred stock in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2515b803a165345396b93cac7c0f7ea33dd8c78e5500f27871709a5931a4df57","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-42","para":"55-42","html":"
In 20X5, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X5:
  1. a
    In accordance with Subtopic 326-20, record an allowance for credit loss for the loan.
    • credit loss expense $50 allowance for credit losses $50
  2. b
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $55 less the carrying amount of $90 equals $35 unrealized loss).
    • Unrealized loss—other comprehensive income $35 Preferred stock investment $35
","snippet":"In 20X5, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X5:\n(a) In accordance with Subtopic 326-20, record an allowance for credit loss for the loan.\n(b) …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2fa5d30dbc204267fe66248ed81cb7213b6ee54b616eb8f9ea497faa36555fc7","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-43","para":"55-43","html":"
In 20X5, the total profit-and-loss charge is $50 (from the loan). Other comprehensive income is debited $35 for the preferred stock investment. The carrying amount for the total combined investment in Investee is reduced to $100 ($0 for the common stock investment, $45 for the loan, and $55 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $35. The adjusted basis of the total combined investment in Investee is reduced to $65 ($0 for the common stock investment, $45 for the loan, and $20 for the preferred stock investment).
","snippet":"In 20X5, the total profit-and-loss charge is $50 (from the loan). Other comprehensive income is debited $35 for the preferred stock investment. The carrying amount for the total combined investment in Investee is reduced…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:51b4f2f47c9f75e80bca4dcffdbffbf45d0a66f0a0aade811a263b03f81f8a6f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-44","para":"55-44","html":"
In 20X6, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X6:
  1. a
    In accordance with Subtopic 326-20, adjust the allowance for credit losses on the loan.
    • allowance for credit losses $50 credit loss expense $50
  2. b
    In accordance with Subtopic 320-10, record the changes in fair value for the available-for-sale preferred stock investment (market price of $90 less the carrying amount of $55 equals $35 unrealized gain).
    • Preferred stock investment $35 Unrealized gain—other comprehensive income $35
","snippet":"In 20X6, there is no equity method income or loss (40% × $0 = $0). Investor would make both of the following entries in 20X6:\n(a) In accordance with Subtopic 326-20, adjust the allowance for credit losses on the loan.\n(b…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e61fc08ef595b313f556f752217a02efce47d0a713b174583da5fc4dd35a11a","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-45","para":"55-45","html":"
In 20X6, the total profit-and-loss credit is $50 (from the loan). Other comprehensive income is credited $35 for the preferred stock investment. The carrying amount of the total combined investment in Investee is increased to $185 ($0 for the common stock investment, $95 for the loan, and $90 for the preferred stock investment), and the balance in accumulated other comprehensive income is a credit of $70. The adjusted basis of the total combined investment in Investee is increased to $115 ($0 for the common stock investment, $95 for the loan, and $20 for the preferred stock investment).
","snippet":"In 20X6, the total profit-and-loss credit is $50 (from the loan). Other comprehensive income is credited $35 for the preferred stock investment. The carrying amount of the total combined investment in Investee is increas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1fa71bc43d8db301d10ed4476e4bfcede9380e0e6ba0c891333561eb8b77750f","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-46","para":"55-46","html":"
Investor would make all of the following entries in 20X7:
  1. a
    Record the sale of the preferred stock.
    • Cash $90 Other comprehensive income 70 Preferred stock investment $90 Gain on sale of security 70
  2. b
    In accordance with this Subtopic, record the equity method income (40% × $1,000 = $400). Although Investor has recorded losses for all prior Investee losses, $80 of such recorded losses (representing the difference between the cost basis of the preferred stock investment of $100 and its adjusted basis of $20) have effectively been reversed in entry (a) by recording a $70 gain on the sale of the preferred stock when an actual loss of $10 (representing the difference between the cost basis of the preferred stock investment of $100 and the proceeds of $90) was incurred. Accordingly, only $320 of equity method income should be recorded ($400-$80).
    • Investment in investee (common) $320 Equity method income $320
  3. c
    In accordance with Subtopic 326-20, adjust the allowance for credit losses on the loan.
    • Allowance for credit losses $5 Credit loss expense $5
","snippet":"Investor would make all of the following entries in 20X7:\n(a) Record the sale of the preferred stock.\n(b) In accordance with this Subtopic, record the equity method income (40% × $1,000 = $400). Although Investor has rec…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:356b0d8433deb67436bac8cdd19ee2a3b2bad598bfd518db5877203ce73da90e","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-47","para":"55-47","html":"
In 20X7, the total profit-and-loss credit is $395 ($70 gain from the sale of the preferred stock, $320 for the equity method income, and $5 from the loan). The carrying value of the total combined investment in Investee is increased to $420 ($320 for the common stock investment and $100 for the loan), and the balance in accumulated other comprehensive income is $0. The adjusted basis of the total combined investment in Investee is increased to $420 ($320 for the common stock investment, $100 for the loan, and $0 for the preferred stock investment).
","snippet":"In 20X7, the total profit-and-loss credit is $395 ($70 gain from the sale of the preferred stock, $320 for the equity method income, and $5 from the loan). The carrying value of the total combined investment in Investee …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e63bf2b345bf63c6a4ec611617fe41b8fdaa885cebea3bc0ca93441303df4902","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-48","para":"55-48","html":"
The following Cases illustrate possible approaches to recognizing equity method losses in accordance with paragraph 323-10-35-28:
  1. a
    Ownership level of particular investment (Case A)
  2. b
    Change in investor claim on investee book value (Case B).
","snippet":"The following Cases illustrate possible approaches to recognizing equity method losses in accordance with paragraph 323-10-35-28:\n(a) Ownership level of particular investment (Case A)\n(b) Change in investor claim on inve…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b3335f035cea662c8fa8a44953236e3707ac3dbe4e9d5c2856f7d23861e23e82","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-49","para":"55-49","html":"
Cases A and B share all of the following assumptions:
  1. a
    Investee was formed on January 1, 20X0.
  2. b
    Five investors each made investments in and loans to Investee on that date and there have not been any changes in those investment levels (that is, no new money, reacquisition of interests by Investee, principal payments by Investee, or dividends) during the period from January 1, 20X0, through December 31, 20X3.
  3. c
    Investor A owns 40 percent of the outstanding common stock of Investee; the common stock investment has been reduced to zero at the beginning of 20X1 because of previous losses.
  4. d
    Investor A also has invested $100 in preferred stock of Investee (50 percent of the outstanding preferred stock of Investee) and has extended $100 in loans to Investee (which represents 60 percent of all loans extended to Investee).
  5. e
    Investor A is not obligated to provide any additional funding to Investee. As of the beginning of 20X1, the adjusted basis of Investor's total combined investment in Investee is $200, as follows.
    • Common stock $- Preferred stock $100 Loan $100
  6. f
    Investee operating income (loss) from 20X1 through 20X3 is as follows.
    • 20X1 $(160) 20X2 $(200) 20X3 $500
  7. g
    Investee's balance sheet is as follows.
    • 1/1/X1 12/31/X1 12/31/X2 12/31/X3 Assets $367 $207 $7 $507 Loan $167 $167 $167 $167 Preferred stock 200 200 200 200 Common stock 300 300 300 300 Accumulated deficit (300) (460) (660) (160) $367 $207 $7 $507
","snippet":"Cases A and B share all of the following assumptions:\n(a) Investee was formed on January 1, 20X0.\n(b) Five investors each made investments in and loans to Investee on that date and there have not been any changes in thos…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5be838552bb89b7d62c2385defc098aa3a9adacacb54c912d94f857690f16a63","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-50","para":"55-50","html":"
Under this approach, Investor A would recognize equity method losses based on the ownership level of the particular investee security, loan, or advance held by the investor to which equity method losses are being applied.
","snippet":"Under this approach, Investor A would recognize equity method losses based on the ownership level of the particular investee security, loan, or advance held by the investor to which equity method losses are being applied…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3647cfeeb123bd70e49a95f83d89ddf4a418f9dc312e2fa01aae745f98427bc3","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-51","para":"55-51","html":"
In 20X1, in accordance with this Subtopic, Investor A would record the equity method loss to the adjusted basis of the preferred stock (the next most senior level of capital) after the common stock investment becomes zero (50% × $160 = $80). Investor A would record the following journal entry.
","snippet":"In 20X1, in accordance with this Subtopic, Investor A would record the equity method loss to the adjusted basis of the preferred stock (the next most senior level of capital) after the common stock investment becomes zer…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f40d8e91cca2b3e7f66f086a7c2972a274edf54048c41cb4427431f56bded888","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-52","para":"55-52","html":"
In 20X2, in accordance with this Subtopic, Investor A would record the equity method loss to the extent of the adjusted basis of the preferred stock of $20 (50% × $40 = $20) and, because the adjusted basis of the preferred stock will then be reduced to zero, record the remaining equity method loss to the adjusted basis of the loan (the next most senior level of capital) (60% × $160 [that is, $200-$40 applied to the preferred stock] = $96). Investor A would record the following journal entry.
","snippet":"In 20X2, in accordance with this Subtopic, Investor A would record the equity method loss to the extent of the adjusted basis of the preferred stock of $20 (50% × $40 = $20) and, because the adjusted basis of the preferr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4f2b72f81a42c5ba16a6b47947d9cd2e8449000cecdf20c32a3d7be104353fae","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-53","para":"55-53","html":"
In 20X3, in accordance with this Subtopic, Investor A would record the equity method income first to the loan until its adjusted basis is restored (60% × $160 = $96), then to the preferred stock until its adjusted basis is restored (50% × $200 = $100), and finally to the common stock (40% × $140 = $56). Investor A would record the following journal entry.
","snippet":"In 20X3, in accordance with this Subtopic, Investor A would record the equity method income first to the loan until its adjusted basis is restored (60% × $160 = $96), then to the preferred stock until its adjusted basis …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0f3b97e76559bc9b283c9554044370a1db174ef157a83cec501c154c1afd255a","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-54","para":"55-54","html":"
Under this approach, Investor A would recognize equity method losses based on the change in the investor's claim on the investee's book value.
","snippet":"Under this approach, Investor A would recognize equity method losses based on the change in the investor's claim on the investee's book value.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0d3e2afc0f840e895b02307b60ac1d196eca2c9614a6bed000ed53a429ca9b72","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-55","para":"55-55","html":"
With respect to 20X1, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X1, it would have $207 available to distribute. Investor A would receive $120 (Investor A's 60% share of a priority claim from the loan [$100] and a priority distribution of its preferred stock investment of $20 [which is 50% of the $40 remaining to distribute after the creditors are paid]). Investor A's claim on Investee's book value at January 1, 20X1, was $200 (60% × $167 = $100 and 50% × $200 = $100). Therefore, during 20X1, Investor A's claim on Investee's book value decreased by $80 and that is the amount Investor A would recognize in 20X1 as its share of Investee's losses. Investor A would record the following journal entry.
","snippet":"With respect to 20X1, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X1, it would have $207 available to distribute. Investor A would receive $120 (Investor A's 60% share…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c62455dcc1b78860cfb76cc5ee06759ce989d30c711a73ae06bac01bf78f0605","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-56","para":"55-56","html":"
With respect to 20X2, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X2, it would have $7 available to distribute. Investor A would receive $4 (Investor A's 60% share of a priority claim from the loan). Investor A's claim on Investee's book value at December 31, 20X1, was $120 (see the preceding paragraph). Therefore, during 20X2, Investor A's claim on Investee's book value decreased by $116 and that is the amount Investor A would recognize in 20X2 as its share of Investee's losses. Investor A would record the following journal entry.
","snippet":"With respect to 20X2, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X2, it would have $7 available to distribute. Investor A would receive $4 (Investor A's 60% share of …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b2d4fb899c56cc502ecc165d462613b1ff89bd5c2e061feaee900d97295c5c7d","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},{"citation":"323-10-55-57","para":"55-57","html":"
With respect to 20X3, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X3, it would have $507 available to distribute. Investor A would receive $256 (Investor A's 60% share of a priority claim from the loan [$100], Investor A's 50% share of a priority distribution from its preferred stock investment [$100], and 40% of the remaining cash available to distribute [$140 × 40% = $56]). Investor A's claim on Investee's book value at December 31, 20X2, was $4 (see above). Therefore, during 20X3, Investor A's claim on Investee's book value increased by $252 and that is the amount Investor A would recognize in 20X3 as its share of Investee's earnings. Investor A would record the following journal entry.
","snippet":"With respect to 20X3, if Investee hypothetically liquidated its assets and liabilities at book value at December 31, 20X3, it would have $507 available to distribute. Investor A would receive $256 (Investor A's 60% share…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0d59a14314057de2d15ecc93a2012789aa9054b777d939444db36a3603be8db0","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b01629751e37f5a71ac638bcd516a6a1de437f7392dd8df4f66209b18637cc71","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3fe6dc893cf41e2bd05979c8bf24532661cc65eee0f30c7d318bfb630652e36b","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3fe6dc893cf41e2bd05979c8bf24532661cc65eee0f30c7d318bfb630652e36b","downloaded_from":"2026-09-09T23:40:17.084Z","last_downloaded_at":"2026-09-09T23:40:17.084Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147481661","source_sha256":"c83fd71faabe69349be8822b5cf08f787257c75625d01cc654346ffd08349663"}}