Build the equity-method bridge

Once significant influence is supported, acquisition cost becomes the opening investment basis. It is not the amount that stays frozen until sale.

Adjust reported investee results

Begin with Linden Peak's share of Harbor's results: 30 percent of $300,000, or $90,000. Then apply investor-basis adjustments. The approved acquisition-date schedule assigns $30,000 to inventory consumed this period and $80,000 to equipment with eight equal periods. Those layers reduce the current share by $40,000: $30,000 for inventory plus $80,000 ÷ 8, or $10,000, for equipment. The resulting equity-method income is $90,000 − $40,000 = $50,000.

Do not call the whole acquisition premium goodwill. Identify the underlying cause, valuation owner, realization or consumption pattern, remaining basis, and review status. The formula applies an approved allocation; it cannot value inventory, equipment, or residual amounts.

Keep distributions and OCI distinct

Harbor pays $100,000 dividends. Linden Peak's $30,000 share reduces the investment because the related performance has already entered through equity- method income. Crediting dividend income would duplicate it. Harbor also reports $12,000 OCI; the supplied 30-percent share adds $3,600 to the investment and Linden Peak's corresponding OCI layer.

$600,000 cost + $50,000 adjusted income − $30,000 dividends
  + $3,600 OCI share = $623,600 ending carrying amount

Add advanced boundaries without hiding them

Losses can drive the investment toward zero. Further recognition depends on additional interests or obligations and other applicable guidance, which this bounded family does not model. Impairment and ownership changes also require their own dated evidence and current research. A spreadsheet must stop rather than silently making the investment negative.

Exit check

Tie opening basis, investee financial statements, ownership fraction, basis- difference schedule, adjusted income, dividends, OCI, impairment if supplied, and ending ledger balance. Identify each difference between investee book income and investor-recognized income in words as well as numbers.