You are auditing a company that owns 22% of the voting common stock of another corporation and uses the equity method to account for the investment. How would you verify that the equity method is appropriate in this case?

You are auditing a company that owns 22% of the voting common stock of another corporation and uses the equity method to account for the investment. How would you verify that the equity method is appropriate in this case?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: For large publicly listed and traded companies, which of the following should not be done as a step…

A: The question is related to Audit Evidence. In gathering evidence concerning the company's capital…

Q: Question Jenny Chan is the accountant for Great Ltd. She is required to prepare a set of…

A: Intragroup transactions are transactions within the cluster or between a parent and subsidiary…

Q: From the options enunciated here under identify the external user of financial information. a.…

A: Users of financial information are categorised into 2 types external and internal users…

Q: Which statements above are incorrect?

A: Treasury stock: These are the stocks that are brought back by the company in order to reduce…

Q: Which of the following audit procedures would not likely be performed for audits of shareholders’…

A: Audit procedures for auditing shareholder’s equity mainly include the number of authorized, issued…

Q: Which of the following statement is correct about publicly traded companies? O A. Publicly traded…

A: The companies which are registered on a stock exchange are known as publicly traded companies. These…

Q: Why can a stockholder have the right to inspect corporate books and records? Is this right absolute…

A: Stockholders:-Stockholders also known as the shareholders of the company. Stockholders includes a…

Q: Question 4. Prepare the correct Journal entries and Closing enteries. Show narrations for each…

A: Step 1 Journal is the part of book keeping.

Q: when analyzing audited financial statements for a publicly traded company, which step south you need…

A: Correct answer is d.determine the accounting principles used.

Q: Statement I: In retained earnings, the auditor should ensure whether it has been properly declared…

A: Statement 1 is true. The auditor need to make sure that the retained earnings are disclosed at the…

Q: 1.Which of the following situations could be evidence that the investor lacks the capacity to…

A: Answer: To exercise significance control over the other company the investor is required to hold…

Q: 7. According to the 1934 Securities Act, select ALL who must certify the quarterly and annual…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Question 4 of 30. To understand the financial position of an S corporation over its lifespan, which…

A: The Income statement present income earned and expenses incurred during the year.The statement of…

Q: "To maintain public confidence and trust in the financial reporting of companies" is the purpose of…

A: Sarbanes- Oxley: The act came in to force from 2002 year. The act is for protecting investors from…

Q: The total owners' equity is usually under a number of subcaptions on the corporations balance sheet.…

A: Shareholder equity is the section that foremost comes in the liability side of the balance sheet

Q: provide a financial analysis of a publicly-traded corporation including an explenation of the key…

A: Select a publicly traded corporation you want to analyze and gather financial information like its…

Q: Identify which one of the following activity is relating to underwriting of capital issues for…

A: Underwriting Agreement: Underwriting agreement is the agreement between the company and the…

Q: The statement of changes in shareholders' equity is: Question 4 options: a required…

A: "We'll answer the first question since the exact one wasn't specified. Please submit a new question…

Q: Assume that You are an investor and that you shortlisted the three companies as possible companies…

A: The list of disclosures in the notes to financial statements that make one interested in choosing…

Q: Which of the following statements is NOT CORRECT? (A) Going public establishes a firm's true…

A: Going public refers to a private company's initial public offering (IPO), thus becoming a…

Q: In auditing a company's Shareholders' Equity, the proceeds from the sale of donated capital should…

A: Shareholders’ Equity shows how much the owner has invested in the business.

Q: (b) Discuss the effects and procedure for mergers and acquisition.

A: (b) Mergers and acquisitions is used to describe the accumulation of companies or their assets…

Q: By underwriting of shares, it is - A. O convenient to get the accounts of the company audited…

A: Underwriting of Shares:It refers to responsibility taken or guarantee given by underwriter that…

Q: Which of the following statements are false? (you may choose more than one statement) A…

A: Option A. is False The issue of ordinary shares will not dilute ownership of the company. Option C.…

Q: QBG Geojit Securities LLC, licensed by the Capital Market Authority as a Financial Intermediary…

A: There are various process in financial systems Like direct, factoring and intermediary process

Q: o what extent is the auditors' opinion an indicator of a company's future financial success and…

A: Auditing: Auditing refers to an independent examination of financial information of any…

Q: An open election allows investors to ____________________ . a) have early access to sensitive…

A: In a company's voting, the members come together for a meeting in order to exercise their voting…

Q: Wilson's Corporation is one of your new audit clients. The corporation's accountant is uncertain how…

A: Earnings per Share ( EPS): Company profit divided by the outstanding shares of its common stock.…

Q: 5. Which of the following technique is used to disclose a firm's's financial performance and…

A: A firm has to disclose its financial performance and financial position as is required by law. This…

Q: ts in other entities depends crucially on the level of influence the investor holds on the investee.…

A: Under equity accounting, the greatest thought is the degree of financial backer impact over the…

Q: 18. Application for a bank loan and Issuance of securities by a corporation are part of situations…

A: The financial statements prepared by the management may contain misstatements, and any other…

Q: The main objective of IFRS and ASPEI to produce financial reporting that is useful for financial…

A: Producing financial reporting that is helpful for users of financial statements is the major goal of…

Q: Which of the following is not an account appearing in the equity section of a corporation's…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: A company, accounting for an equity investment under the equity method, is preparing its income…

A: The uniting of two or more independent entities to create a single economic entity is referred to as…

Q: A – F: Your client is a public company in which you maintain a small financial interest. How is your…

A: Auditor independence seems to be fundamental to the auditing profession. An audit that is…

Q: Which of the following statements is NOT CORRECT? "Going public" establishes a firm's true intrinsic…

A: The correct and incorrect options and their explanations have been given in the next step.

Q: There are vairous measures to evaluate a company's finances. What are three measures that look at…

A: Your question isn't very clear and could be answered in atleast two different ways. I will provide…

Q: Question 5. Orange, Inc. is a corporation listed on the New York Stock Exchango (NYSE). Which of the…

A: Since you have posted multiple questions, as per answering guidelines we shall be solving first…

Concept explainers

Stock Market Indices

Stock indexes are used to compare the price fluctuations of a group of stocks of similar companies, which are combined based on a similar industry or a particular market capitalization limit or type of market. The price comparison is based on a pre-determined standard method or indicators. These stock indexes are usually considered a base for comparison of a particular stock, and the performance of that particular company can be easily determined.

Question

TCO A) You are auditing a company that owns 22% of the voting common stock of another corporation and uses the equity method to account for the investment. How would you verify that the equity method is appropriate in this case?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Definition

VIEW

Step 2: Appropriate method of investment

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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

Shares are equity, but to the firm is a liability for the investor is an asset. What is the shares subject, equity, liability, or asset? For corporate, Shares is in where on the balance sheet?
Which of the following user groups would be interested in the company's dividend policy and operational performance when dividends have not been paid? A Shareholders B External auditors C Providers of credit D Employee
A first-year accounting student is confused by a statement made in a recent class. Her instructor stated that theassets listed in the balance sheet of the IBM Corporation include computers that are classified as current assetsas well as computers that are classified as long-term (noncurrent) assets. In addition, the instructor stated thatinvestments in marketable securities of other corporations could be classified in the balance sheet as either currentor long-term assets.Required:Explain to the student the distinction between current and long-term assets pertaining to the IBM computers andthe investments in marketable securities.The usefulness of the balance sheet is enhanced when assets and liabilities are grouped according to commoncharacteristics. The broad distinction made in the balance sheet is the current versus long-term classification ofboth assets and liabilities.Required:1. Discuss the factors that determine whether an asset or liability should be classified as current or…
Which of the following audit procedures would be most relevant when examiningthe completeness transaction-related audit objective for capital stock?(1) The auditor examines minutes of the board of directors’ meetings to identifyany actions involving the issuance of capital stock.(2) The auditor vouches entries in the client’s capital stock records to board minutes.(3) Confirmations of new stock issuances are sent to the client’s stock transfer agent.(4) The auditor traces entries of new stock issuances to the cash receipts journal.
1. The role of overseeing/giving advice on standard setting processes of AASB & AUASB lies with: Select one: a. the Australian Accounting Standards Review Board. b. the Financial Accounting Standards Board. c. the Financial Reporting Council. d. the International Accounting Standards Board. 2. Which statement below is true about the "underwriting" of shares? Select one: a. Underwriting will avoid having to refund monies due to under-subscription. b. Underwriting services are offered free of charge. c. Underwriting is required when the shares are over-subscribed. d. Underwriting will require refunding excess application monies to unsuccessful applicants.
2. What business risks does P&G face that may threaten its ability to satisfy stockholderexpectations? What are some examples of control activities that the company could use toreduce these risks? (Hint: Focus on page 28 of the annual report).
An auditor working with a publicly traded client learns that the client has been completing stock trades based on insider information. how should the auditor fulfill the legal obligations?
Which of the following statements is NOT CORRECT? "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the fiem's shares. Publicy owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called he new issue market. It is possible for a firm to go public and yet not raise any additional new capital When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the fim is "closely, or privately, held
The par value of common stock represents a. the estimated fair value of the stock when it was issued. b. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings. c. the total value of the stock that must be entered in the issuing corporation’s records. d. the amount that must be recorded on the issuing corporation’s record as paid-in capital.
Describe the users of audited financial statements and the decisions that they need to make based on reliable information. Please use the illustration below to help you answer this question.
Which of the following is the most important audit consideration when examining the stockholders’ equity section of a client’s balance sheet?a. Changes in the capital stock account are verified by an independent stock transfer agent.b. Stock dividends and stock splits during the year under audit were approved by the stockholders.c. Stock dividends are capitalized at par or stated value on the dividend declaration date.d. Entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors.
Match each of the financial statement theory and concepts with the statement that best describes them Maximize shareholder wealth Corporate Governance financial securities _____ 1. Tradable promises of future payments issued by government and companies _____ 2. The set of rules that control companies’ behaviour towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community _____ 3. It’s required to mitigate the agency problem (information asymmetry and moral hazard) within the firm _____ 4. It is the primary (main) objective of the firm _____ 5. It consists of debt instruments and equity instruments