Under what circumstances is the equity method used to account for an investment in stock?
Cercumstance when equity method is used---when the holding company (investor company) has significant influence over investee company.
Detailed explanation
There are two methods of recording investment in stock. Fair value method and equity method.
Equity method is used when the holding company has significant influence over the investee company.
Significant influence is said to be present when the holding company holds more than 20% of shares of of the investee company or holds more than 20% voting rights of investor company or both.
Under what circumstances is the equity method used to account for an investment in stock?
An investor uses the equity method to account for an investment in common stock. Assume that (1) the investor owns less than 50 percent of the outstanding common stock of the investee, (2) the investee company reports net income and declares dividends during the year, (3) the fair value of the investee’s stock is unchanged during the year, and (4) the investee’s net income is more than the dividends it declares. How would the investor’s investment in the common stock...
Tuue ul lhe investment account reduced under equity-method reporting? What is a differential? How is a differential treated by an investor in computing income from an investee under (a) cost-method and (b) equity-method reporting? Turner M U4-2 LO 4-1 Q4-3
Question 6 If the cost method is used to account for a long-term investment in common stock, dividends received should be credited to the Dividend Revenue account. debited to the Stock Investments account. recorded only when 20% or more of the stock is owned. credited to the Stock Investments account. Question 7 If 10% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is determined by agreement...
An investor uses the equity method to account for an investment in common stock. The investor's equity in the earnings of the investee is affected by A Change in Fair Cash Dividends Value of the Investee's from Investee Common Stock o o o 3
Under what circumstances is it better to issue equity stock or long-term bonds over the alternative? Discuss the positive and negative ramifications by choosing one over the other.
When is the carrying value of the investment account reduced under equity-method reporting? I would like to obtain an in depth explanation of this scenario.
What is the rationale for used the Equity Method for accounting for Investments in the Common Stock of another Corporation? Describe the accounting for Investments in Common Stock under the Equity Method.
QUESTION 1 An investor should always use the equity method to account for an investment if it owns 30% of an investee's stock. True False OLIESTION 2
1. Under what circumstances is an investment is classified as Held to-maturity investment? Available-for-sale investment? 2. In the current year, a company sells all its held-to-maturity investments because the market values had appreciated significantly. Can other investments now be classified as held to maturity? 3. An investor owns 40% of the shares of another company. Is this evidence enough to conclude that significant influence exists? 4. What are bonds and why are they used? 5. An available-for-sale investment is bought...
When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded: Multiple Choice As a reduction in the investment account. As an increase in the investment account. As dividend income. As a contra item to stockholders' equity.