Where exactly does goodwill appear on the balance sheet under the equity method?

Goodwill under the equity method is embedded in the investment carrying value — it does NOT appear as a separate balance-sheet line item. This is one of the biggest differences between equity-method accounting and full consolidation.

Equity method balance sheet treatment:

The "Investment in William Inc. $500,000" line on Lucia's balance sheet implicitly contains $66K + $18K + $6K + $410K = $500K. None of those internal components are separately disclosed in the financial statements (though they may appear in the footnotes for material investments).

Why is it hidden?

Because the equity method is a one-line consolidation. You compress the entire investee balance sheet into one number on the investor's balance sheet. All the underlying components — net assets, fair-value step-ups, goodwill — are folded into that one line.

Footnote disclosure:

In SEC-registered filings, the investor must disclose:

• The name of the investee
• Ownership percentage
• Carrying value of the investment
• Equity income recognised in the period

For materially significant investments, the investor may also disclose the investee's summarised financial statements (revenue, net income, total assets, total liabilities). But goodwill and other internal components are NOT individually disclosed.

Compare to full consolidation:

If Lucia owned 80% of William instead of 30%, full consolidation would apply:

• Goodwill appears as a separate balance-sheet line under "Intangible Assets"
• William's individual assets and liabilities are combined into Lucia's balance sheet line-by-line
• Non-controlling interest (20% in this case) appears in equity

So goodwill's visibility depends on the accounting method:

Implication for ratio analysis:

Because equity-method goodwill is hidden, ratios computed from the investor's balance sheet may be misleading:

• Debt-to-Equity: looks better under equity method (no investee liabilities consolidated)
• Return on Assets: looks better under equity method (no investee assets consolidated)
• These ratios get "worse" if you shift to full consolidation

Analysts sometimes adjust by un-consolidating an equity-method investment to compare across companies. CFA Level II tests this concept — be prepared to compute "adjusted" ratios.

Impairment:

When goodwill is embedded, you can't impair it separately. Instead, the entire investment carrying value is tested for impairment. If the recoverable amount of the investment is less than its carrying value, you write down the whole investment line (not just the goodwill component) and recognise an impairment loss.

This is conceptually different from goodwill under full consolidation, where goodwill itself is tested for impairment annually under ASC 350 / IAS 36.