FINANCIAL+MANG.-W/ACCESS  PRACTICE SET
FINANCIAL+MANG.-W/ACCESS PRACTICE SET
13th Edition
ISBN: 9781337575614
Author: WARREN
Publisher: CENGAGE L
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Chapter 13, Problem 12EX

a)

To determine

Equity investment:

Equity investments are stock instruments which claim ownership in the investee company and pay dividend revenue to the investor company.

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.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To journalize: The stock investment transactions for Company B, under the equity method.

(b)

To determine

The stock investment balance for Company B.

(c)

To determine

To discuss: The differences between valuation of investment under equity method and fair value method

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FINANCIAL+MANG.-W/ACCESS PRACTICE SET

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