Reporting a Change to the Equity Method Assume an investor company acquires for $9,600 a 5% Investment in the common stock of an investee company on February 15, 2021. The investor determined the common stock of the investee has a readily determinable fair value. On December 31, 2021, the fair value of the 5% common stock Investment is $11,760, and the investor company made all of the appropriate adjustments in preparation of the annual financial statements. On March 1, 2022, the investor company acquires an additional 20% of common stock of the investee for $48,640, thereby increasing the investor's overall ownership interest to 25%. Required a. Prepare the journal entries the investor company should record on March 1, 2022. b. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 2016 common stock purchase on March 1, 2022 does qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. c. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 2016 common stock purchase on March 1, 2022 does not qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. C V the record the phase of an additional 20% interest in the common stock) (to adjust the existing 5% holding of investee stock to fair value) V v (o record the purchase of an additional 10% interest in the common stock) V nadiuus the existing 5% coat-based holding of investee stock to fair valve) record the case of an additional 10% interest in the common stock Debit Credit

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 to the Equity Method
Assume an investor company acquires for $9,600 a 5% investment in the common stock of an investee company on February 15, 2021. The investor determined the common stock of the investee has a readily determinable fair value. On December 31, 2021, the fair value of the 5% common stock investment is $11,760, and the investor company made
all of the appropriate adjustments in preparation of the annual financial statements. On March 1, 2022, the investor company acquires an additional 20% of common stock of the investee for $48,640, thereby increasing the investor's overall ownership interest to 25%.
Required
a. Prepare the journal entries the investor company should record on March 1, 2022.
b. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does qualify as an observable price change in orderly
transaction. Prepare the journal entries the investor company should record on March 1, 2022.
c. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does not qualify as an observable price change in orderly
transaction. Prepare the journal entries the investor company should record on March 1, 2022.
a.
b
C.
(to record the purchase of an additional 20% interest in the common stock.)
(to adjust the existing 5% holding of investee stock to fair value.)
(to record the purchase of an additional 10% interest in the common stock.)
(to adjust the existing 5% cost-based holding of investee stock to fair value.)
(to record the purchase of an additional 10% interest in the common stock.)
Debit
Credit
Transcribed Image Text:Reporting a Change to the Equity Method Assume an investor company acquires for $9,600 a 5% investment in the common stock of an investee company on February 15, 2021. The investor determined the common stock of the investee has a readily determinable fair value. On December 31, 2021, the fair value of the 5% common stock investment is $11,760, and the investor company made all of the appropriate adjustments in preparation of the annual financial statements. On March 1, 2022, the investor company acquires an additional 20% of common stock of the investee for $48,640, thereby increasing the investor's overall ownership interest to 25%. Required a. Prepare the journal entries the investor company should record on March 1, 2022. b. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. c. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does not qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. a. b C. (to record the purchase of an additional 20% interest in the common stock.) (to adjust the existing 5% holding of investee stock to fair value.) (to record the purchase of an additional 10% interest in the common stock.) (to adjust the existing 5% cost-based holding of investee stock to fair value.) (to record the purchase of an additional 10% interest in the common stock.) Debit Credit
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
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