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 $120,000, 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 $96,000. As a result of this sale, the investor sold 75% of its previously held investment (.e, 24%6/32%) 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. Equity investment Unrealized holding gain in net income adjust the equity investment to fair value] the record the sale of equite securities (to edust the equity investment to fair value) V V V V Debit Credit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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 $120,000, 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 $96,000. 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.
b.
C.
Equity investment
Unrealized holding gain (in net income)
(to record the sale of equity securities.)
(to adjust the equity investment to fair value.)
(to record the sale of equity securities.)
(to adjust the equity investment to fair value.)
(to record the sale of equity securities.)
> > > > > > > > > >
Debit
Credit

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Step 1

Journal entries are recorded with debit and credit sides where one or more than one account is shown with a debit balance and similarly, the net effect of the transaction is reflected against other respective accounts with credit balances and a proper explanation is provided for every transaction. The debit and credit sides should match in each transaction recording by adjusting the difference in some other relevant account. From here the accounts are shown in final statements with their final net balances.

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