If the equity method is used to account for an investment in common sharesO net income of the investee is ignored by the investor.O net income of the investee is recorded as realized gains, but dividends received are credited to the investment account.the investment account may be at times greater than the acquisition cost.O it is presumed that the investor has no significant influence on the investee.

The objective of the question is to identify the correct statement about the equity method of…

Answered: If the equity method is used to account…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

The declaration of the dividends by a company has no effect on the retained income of the company, true or false?
Under IFRS, the unrealized loss on trading investments should be reported: a. as part of other comprehensive loss, reducing net income. b. on the income statement, reducing net income. c. as part of other comprehensive loss, not affecting net income. d. directly to stockholders' equity, bypassing the income statement.
Analyze the truth of this statement: Under the cost method of accounting for investments, a dividend received is treated as a reduction in the book value of the investment. Group of answer choices This statement is true. This statement is false. There is not enough information to determine the truth of this statement. There is no such thing as a cost method.
Statement I. Book value per share is tantamount to earnings per share Statement II. Dividends payable in noncash asset should be charged to accumulated profits at fair value of the noncash asset a. Statement I and II are trueb. Statement I and II are falsec. Statement I is true, Statement II is falsed. Statement I is false, Statement II is true
When an investor has significant influence over an investee, the investor must use the equity method of accounting to recognise the investee in its consolidated financial statements. Select one: True False
An auditor’s analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused bya. An error in recording amortization of the excess of the investor’s cost over the investment’s underlying book value.b. The investee’s decision to reduce cash dividends declared per share of its common stock.c. An error in recording the unrealized gain from an increase in the fair value of available for sale securities in the income account for trading securities.d. A substantial fluctuation in the price of the investee’s common stock on a national stock exchange.
Provide answer this question
Why are unrealized gains and losses from available-for-sale securities not reported as a component of net income? Select one: a. Because goodwill exists that must be separately accounted for b. Because the investor has the ability to exercise significant influence over the investee c. Because consolidated financial statements must be prepared d. Because large swings in market value over which management has no control may distort current period performance as measured by net income
n reference to intercompany transactions between an investor and an investee, when the investor can significantly influence the investee, which of the following statements is correct, assuming that the investor is using the equity method? Question 9Answer a. As long as the investor recognizes the effects of the transaction in its financial statements, it is notrequired to provide any additional disclosures. b. In reporting its share of earnings and losses of an investee, the investor must eliminate the effect of profits and losses on the intercompany transactions until they are realized. c. None of the others are correct. d. There is the presumption of arms-length bargaining between the related parties.
At the date of declaration, all are true about a property dividend except: O A property dividend results in a reduction to Additional Paid-In Capital. O A property dividend results in a reduction to Retained Earnings O A property dividend results in a reduction of Total Stockholders' Equity O A property dividend can generate a gain or loss based on the property's relative fair value and book value. Which of the following is true about direct costs companies incur to sell stock? O All of these answers are correct. O These costs include underwriting costs. O They are accounted for as a reduction to additional paid-in capital. O They do not meet the definition of an expense.

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