Chapter 12, Problem 7CPA

To determine

Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.

Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.

Consolidated Balance sheet: Consolidated balance sheet refer to the balance sheet prepared with the data of both parent company and subsidiary company. So, consolidated balance sheet is prepared when a company (parent company) holds more than 50% of stock of another company (subsidiary company).

To Show: How the excess of fair value is reported by Company P.