Under the equity method, you must record your share of the investee’s OCI as OCI on your own books. You report OCI on the income statement below net income. Under the cost method, you make no accounting entries regarding investee OCI.
The dividing line between the two motivations is 20 percent of outstanding shares, according to generally accepted accounting principles.
If you own less than 20 percent of the investee shares, you use the cost method to record the investment.
“Other comprehensive income” is an equity account that records gains and losses resulting from events over which your company has no control.
Examples include changes to foreign currency exchange rates, changes to the value of available-for-sale securities and gains or losses on pension plans.
Under the equity method, you update the carrying value of your investment by your share of the investee’s income or losses.