What is the rationale for used the Equity Method for accounting for Investments in the Common...
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.
Homework Answers
Under Equity Method, for accounting the investments in the
common stock of another corporation, the investor records the
investment initially at cost, and then such value is adjusted with
any change due to the changes in the investor's share in the
company's income or losses. The share of the investee's profits
that the investor recognizes is calculated based on the investor's
ownership percentage of the investee's common stock. When
calculating its share of the investee's profits, the investor must
also eliminate intra-entity profits and losses.
For example,
A Ltd. has a capital of 100,000 shares of $10 each, and B Ltd. buys
40% share in A Ltd. at $11 per share.
Cost of investment of B Ltd. = $440,000
The journal entry passed will be -
Investment in the share of A Ltd. Dr. $440,000
Bank A/c $440,000
Suppose, the company earns a profit of $200,000 for the year. B
Ltd.'s share will be 40% of $200,000, i.e. $80,000
The value of investment for B Ltd. will increase by its share, and
the journal entry required will be -
Investment in the share of A Ltd. Dr. $80,000
Revenue from Investment $80,000
Thus, the value of investment will become $520,000 at the
year-end.
Add Answer to:
What is the rationale for used the Equity Method for accounting
for Investments in the Common...
Question 6 If the cost method is used to account for a long-term investment in common...
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...
What is the method of accounting for investments in equity securities in which the investor records...
What is the method of accounting for investments in equity securities in which the investor records its share of periodic net income of the company that they have invested in? O market method O income method O cost method O equity method Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on the income statement as other expense. On the statement of cash flows, what amount should be reported as an investing activity from...
show the solution as well The Equity Method of Accounting for Investments 31 17. On January...
show the solution as well
The Equity Method of Accounting for Investments 31 17. On January 1. 2018, Alamar Corporation acquired a 40 percent interest in Burks, Inc., for $210.000 On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $360,000 During 2018, Burks reported net income of $80,000 and declared and paid cash dividends of $25,000. Alamar sold inventory costing $30,000 to Burks during 2018 for $40.000. Burks used all of this...
ng purposes, the method used to account for investments in common stock is determined by or...
ng purposes, the method used to account for investments in common stock is determined by or accounti Da. whether the acquisition of the stock by the investor was "friendly" or "hostile Ob. the amount paid for the stock by the investor Oc. whether the tock has pa d dividends in past years ○d. the extent of an invest-s influence over the operating and financial affairs of the investee
Under what circumstances is the equity method used to account for an investment in stock?
Under what circumstances is the equity method used to account for an investment in stock?
Q1 (12 marks) & The accounting for equity investments is one of the hot topics in...
Q1 (12 marks) & The accounting for equity investments is one of the hot topics in finance and accounting because it can have significant consequences on the profitability and the financial position of companies. The debate covers several accounting aspects including the substance vs. form dilemma. Normally the accounting method for an equity investment depends on the level of influence achieved by one company when investing in another company. For example, a company that achieves control over another company is...
An investor uses the equity method to account for an investment in common stock. Assume that...
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...
Stock Inv Stock Investments Loss on Sale of Stock Investments Cash.. . d. 25% of the...
Stock Inv Stock Investments Loss on Sale of Stock Investments Cash.. . d. 25% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is a. the cost method. b. the equity method. C. the preparation of consolidated financial statements. d. determined by agreement with whomever owns the remaining 90% of the stock, 6) On January 1, 2020, Jamestina Corp. paid $1,800,000 for 100,000 shares of Belinda Company's...
Passive investments in equity Securities die readily marketable investments that management intends to hold for extended...
Passive investments in equity Securities die readily marketable investments that management intends to hold for extended periods. always long-term investments. current assets that require the equity method of accounting for investments Investments with no influence on the investee. 2 pts Question 12 Dewey Inc. owns 64% of Felicity Corporation's outstanding voting stock. Dewey should account for its investment in Felice using: the fair value method the cost method consolidated financial statements. the mark-to-market method 2 pts Question 13 that When...
7. Exercise 15-12 Accounting for equity method investments LO P5 Listed below are a few events...
7.
Exercise 15-12 Accounting for equity method investments LO P5 Listed below are a few events and transactions of Kodax Company Year 1 Jan. 2 Purchased 30,eee shares of Grecco Co. common stock for $411, ce cash. Grecco has 9,000 shares of common stock outstanding and its activities will be significantly influenced by Kodax Sept. 1 Grecco declared and paid cash dividend of $1.50 per share. Dec. 31 Grecco announced that net incore for the year is $486.000. Year 2...
What is the method of accounting for investments in equity securities in which the investor records its share of periodic net income of the company that they have invested in? O market method O income method O cost method O equity method Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on the income statement as other expense. On the statement of cash flows, what amount should be reported as an investing activity from...
show the solution as well
The Equity Method of Accounting for Investments 31 17. On January 1. 2018, Alamar Corporation acquired a 40 percent interest in Burks, Inc., for $210.000 On that date, Burks's balance sheet disclosed net assets with both a fair and book value of $360,000 During 2018, Burks reported net income of $80,000 and declared and paid cash dividends of $25,000. Alamar sold inventory costing $30,000 to Burks during 2018 for $40.000. Burks used all of this...
ng purposes, the method used to account for investments in common stock is determined by or accounti Da. whether the acquisition of the stock by the investor was "friendly" or "hostile Ob. the amount paid for the stock by the investor Oc. whether the tock has pa d dividends in past years ○d. the extent of an invest-s influence over the operating and financial affairs of the investee
Q1 (12 marks) & The accounting for equity investments is one of the hot topics in finance and accounting because it can have significant consequences on the profitability and the financial position of companies. The debate covers several accounting aspects including the substance vs. form dilemma. Normally the accounting method for an equity investment depends on the level of influence achieved by one company when investing in another company. For example, a company that achieves control over another company is...
Stock Inv Stock Investments Loss on Sale of Stock Investments Cash.. . d. 25% of the common stock of an investee company is purchased as a long-term investment, the appropriate method of accounting for the investment is a. the cost method. b. the equity method. C. the preparation of consolidated financial statements. d. determined by agreement with whomever owns the remaining 90% of the stock, 6) On January 1, 2020, Jamestina Corp. paid $1,800,000 for 100,000 shares of Belinda Company's...
Passive investments in equity Securities die readily marketable investments that management intends to hold for extended periods. always long-term investments. current assets that require the equity method of accounting for investments Investments with no influence on the investee. 2 pts Question 12 Dewey Inc. owns 64% of Felicity Corporation's outstanding voting stock. Dewey should account for its investment in Felice using: the fair value method the cost method consolidated financial statements. the mark-to-market method 2 pts Question 13 that When...
7.
Exercise 15-12 Accounting for equity method investments LO P5 Listed below are a few events and transactions of Kodax Company Year 1 Jan. 2 Purchased 30,eee shares of Grecco Co. common stock for $411, ce cash. Grecco has 9,000 shares of common stock outstanding and its activities will be significantly influenced by Kodax Sept. 1 Grecco declared and paid cash dividend of $1.50 per share. Dec. 31 Grecco announced that net incore for the year is $486.000. Year 2...
Most questions answered within 3 hours.
-
The random variable X is exponentially distributed, where X
represents the time it takes for a...
asked 2 minutes ago -
MATLAB
write a MATLAB function (1) output a third-order polynomial
function with the coefficients as the...
asked 10 minutes ago -
A z-score
communicates a raw score’s "relative standing"
under the normal curve in relation to:
asked 18 minutes ago -
An object is vibrating on a spring with the following equation
of motion:
?=(30 ??)cos((2?)/(160)?)
a)...
asked 18 minutes ago -
Vulcan Flyovers offers scenic overflights of Mount St. Helens,
the volcano in Washington State that explosively...
asked 20 minutes ago -
If organizations do not adapt fast enough and move incrementally
from the twentieth-century model to the...
asked 21 minutes ago -
A helium balloon with 2.5L of gas has a gauge pressure of 10,000
Pa. The balloon...
asked 25 minutes ago -
What is responsible for Jupiter's enormous magnetic field?
asked 41 minutes ago -
At the end of the year, a company offered to buy 5,000 units of
a product...
asked 42 minutes ago -
Implement C++ program for each of the following.
Let D = [-48, -14, -8, 0, 1,...
asked 1 hour ago -
Consider a labor market in which LD = 400 – 4W and LS = 250 +...
asked 1 hour ago -
Let’s say you are teaching a typically-developing young child
how to eat with a spoon. Describe...
asked 59 minutes ago