Reporting a Change from the Equity Method to Insignificant Influence Assume on August 1, 2022, an investor company owns 32% of the common stock of an investee and can exercise significant influence over the investee. On this same date, the investor sold, for $60,000 , 24% of the outstanding common stock of the equity investment to an unaffiliated party. Immediately preceding this sale, the investor’s balance of the 32% Equity Investment account was $48,000 . As a result of this sale, the investor sold 75% of its previously held investment (i.e., 24% / 32%) and now retains 25% of the previous investment. Required a. Assume the investor determined the investee’s stock does have a readily determinable fair value. Prepare the journal entry (or entries) the investor company should record on August 1, 2022. b. Assume the investor determined the investee’s stock does not have a readily determinable fair value, and the transaction resulting in the loss of significant influence does provide an observable price change in orderly transactions for the identical or a similar investment of the same issuer. Prepare the journal entry (or entries) the investor company should record on August 1, 2022. c. Assume the investor determined the investee’s stock does not have a readily determinable fair value, and the transaction resulting in the loss of significant influence does not provide an observable price change in orderly transactions for the identical or a similar investment of the same issuer. Prepare the journal entry (or entries) the investor company should record on August 1, 2022.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Reporting a Change from the Equity Method to Insignificant Influence

Assume on August 1, 2022, an investor company owns 32% of the common stock of an investee and can exercise significant influence over the investee. On this same date, the investor sold, for $60,000 , 24% of the outstanding common stock of the equity investment to an unaffiliated party. Immediately preceding this sale, the investor’s balance of the 32% Equity Investment account was $48,000 . As a result of this sale, the investor sold 75% of its previously held investment (i.e., 24% / 32%) and now retains 25% of the previous investment.

Required
a. Assume the investor determined the investee’s stock does have a readily determinable fair value. Prepare the journal entry (or entries) the investor company should record on August 1, 2022.
b. Assume the investor determined the investee’s stock does not have a readily determinable fair value, and the transaction resulting in the loss of significant influence does provide an observable price change in orderly transactions for the identical or a similar investment of the same issuer. Prepare the journal entry (or entries) the investor company should record on August 1, 2022.
c. Assume the investor determined the investee’s stock does not have a readily determinable fair value, and the transaction resulting in the loss of significant influence does not provide an observable price change in orderly transactions for the identical or a similar investment of the same issuer. Prepare the journal entry (or entries) the investor company should record on August 1, 2022.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Accounting for Financial Instruments
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education