Equity method: The equity method basically keeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance. Cost method: The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made. To calculate: The preparation of consolidated income statement for Neiman and its subsidiary with supporting of income distribution schedule.

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Chapter 3, Problem 10.3E

To determine

Equity method: The equity method basically keeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.

Cost method: The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.

To calculate: The preparation of consolidated income statement for Neiman and its subsidiary with supporting of income distribution schedule.

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