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Loss on Sale of Equity Method Investments

Brian Krogol
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So let's imagine instead of selling it out again, we had sold it at a loss. So we'll still have that same book value that we had up above the book value that we saw in our t account of 1,266,000. Well let's compare that here in this example. So we're gonna report a loss in if the selling price is below the book value, right? The selling price is below the book value while we sold it at a loss. So on january 2nd year three big old company sold its investment in small boy company for 1,100,000. So again, how much cash did we receive? Well, we received one million. 100,000 for this sale. So that's gonna be our debit and we need to get the investment off of our books, right? So we need a credit to the investment equity method investment and that's going to be for the book value of one million, 266,000. Just like we saw in our T. Account 1,266,000. So how do we make this balance? What we need the loss right? We have a loss because we had it on our books for 1 to 66, but we sold it for less than that. So we're gonna need another debit of 100 and 66,000 to make this balance out. And that's gonna be the loss on the sale of investment. And that will go to our income statement, right? So we saw that we got cash Of 1.1 million. That was an increase to our assets. But we had to decrease our assets by the amount of the investment, which is one million to 66,000. So we had a net decrease there in our assets, And then the net decrease in the assets is matched by this loss on our income statement of 166,000 and everything stays balanced there. Okay. So very similar to the game. Except we sold it at a lower price than our book value. Cool. Alright, let's try some practice problems related to the equity method.