Crash Course in Accounting and Financial Statement Analysis, Second Edition

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.

15. Income from Equity in Affiliates

Exercise Q1: 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.