Explanation Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds. The rationale for using the equity method for an investment in common stock is as follows: If the investor company owns a large amount of common stock of another company, then it is able to exercise its significant influence over the operating and the financial policy of the investee company. The investor might be able to influence the investee company’s dividend policy with respect to the own cash needs or to raise its income or for the consideration of the tax...

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN: 9781337788281

Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher: Cengage Learning

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Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The sto…

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Chapter 13, Problem 22GI

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Chapter 13, Problem 21GI

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Chapter 13 Solutions

Intermediate Accounting: Reporting And Analysis

Ch. 13 - Prob. 1GI Ch. 13 - Provide brief definitions for the following terms:...Ch. 13 - What are the three categories of investments in...Ch. 13 - Prob. 4GI Ch. 13 - Prob. 5GI Ch. 13 - Identify the accounting methods a company uses for...Ch. 13 - Briefly summarize the accounting for an investment...Ch. 13 - Prob. 8GI Ch. 13 - Prob. 9GI Ch. 13 - Prob. 10GI

Ch. 13 - Prob. 11GI Ch. 13 - Prob. 12GI Ch. 13 - Prob. 13GI Ch. 13 - Prob. 14GI Ch. 13 - Prob. 15GI Ch. 13 - Briefly describe how to determine and record the...Ch. 13 - Prob. 17GI Ch. 13 - Prob. 18GI Ch. 13 - Prob. 19GI Ch. 13 - Briefly describe how to determine and record any...Ch. 13 - Prob. 21GI Ch. 13 - Prob. 22GI Ch. 13 - Prob. 23GI Ch. 13 - Prob. 24GI Ch. 13 - How does IFRS categorize minority passive...Ch. 13 - Prob. 26GI Ch. 13 - Prob. 27GI Ch. 13 - Prob. 28GI Ch. 13 - Prob. 29GI Ch. 13 - Prob. 30GI Ch. 13 - Prob. 31GI Ch. 13 - What is a fund? Distinguish between a fund and an...Ch. 13 - Prob. 33GI Ch. 13 - Prob. 34GI Ch. 13 - Prob. 1MC Ch. 13 - During 2021, Anthony Company purchased debt...Ch. 13 - On July 1, 2019, Aldrich Company purchased as an...Ch. 13 - In 2021, Cromwell Corporation purchased bonds of...Ch. 13 - Prob. 5MC Ch. 13 - A security in a portfolio of available-for-sale...Ch. 13 - On its December 31, 2018, balance sheet, Fay...Ch. 13 - Prob. 8MC Ch. 13 - Cash dividends declared out of current earnings...Ch. 13 - On January 1, 2019, Park Company accepted a...Ch. 13 - Prob. 1RE Ch. 13 - Prob. 2RE Ch. 13 - Prob. 3RE Ch. 13 - Refer to the information in RE 13-3. Assume that...Ch. 13 - Prob. 5RE Ch. 13 - Refer to the information in RE13-5. Assume that on...Ch. 13 - Refer to the information in RE13-5. Assume that on...Ch. 13 - Prob. 8RE Ch. 13 - On February 1, 2019, Razorback Corporation decides...Ch. 13 - On September 30, Franz Corporation notices a...Ch. 13 - Prob. 11RE Ch. 13 - Refer to the information in RE13-11. Assume that...Ch. 13 - Prob. 13RE Ch. 13 - Prob. 14RE Ch. 13 - On January 1, Kilgore Inc. accepts a 20,000...Ch. 13 - Prob. 16RE Ch. 13 - Prob. 1E Ch. 13 - Held-to-Maturity Securities and Amortization of a...Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Investment Discount Amortization Schedule On...Ch. 13 - Investment Premium Amortization Schedule On...Ch. 13 - Prob. 7E Ch. 13 - Trading Securities At the beginning of 2019, Able...Ch. 13 - Prob. 9E Ch. 13 - Prob. 10E Ch. 13 - Available-for-Sale Securities On December 31,...Ch. 13 - Available-for-Sale Securities At the beginning of...Ch. 13 - Available-for-Sale Securities At the end of 2018,...Ch. 13 - Transfer between Categories On December 31, 2018,...Ch. 13 - Impairment On June 1, 2019, Hansen Company...Ch. 13 - Equity Securities Midwest Bank invests in equity...Ch. 13 - Equity Securities Southeast Bank invests in equity...Ch. 13 - Prob. 18E Ch. 13 - Prob. 19E Ch. 13 - Prob. 20E Ch. 13 - Notes Receivable On January 1, 2019, Crouser...Ch. 13 - Notes Receivable On January 1, 2019, Worthylake...Ch. 13 - Note Receivable in Installments On January 1,...Ch. 13 - Notes Receivable and Income On January 1, 2019,...Ch. 13 - Prob. 25E Ch. 13 - Sinking Funds Entries The following information is...Ch. 13 - (Appendix 13.1) Derivatives Anglar Company has a 3...Ch. 13 - Prob. 1P Ch. 13 - Prob. 2P Ch. 13 - Prob. 3P Ch. 13 - Bond Investment Premium Amortization Schedule...Ch. 13 - Prob. 5P Ch. 13 - Trading Securities Akers Company invests its...Ch. 13 - Investment in Trading Securities The following...Ch. 13 - Prob. 8P Ch. 13 - Available-for-Sale Securities Holly Company...Ch. 13 - Investment in Available-for-Sale Bonds The...Ch. 13 - Investments in Available-for-Sale Bonds During...Ch. 13 - Equity Securities The investment manager of 4th...Ch. 13 - Equity Securities 8th State Bank prepares interim...Ch. 13 - Investments in Equity Securities Noonan...Ch. 13 - Investments in Equity Securities Manson...Ch. 13 - Prob. 16P Ch. 13 - Prob. 17P Ch. 13 - Prob. 18P Ch. 13 - Prob. 19P Ch. 13 - Equity Method and Subsequent Sale On January 1,...Ch. 13 - Prob. 21P Ch. 13 - Notes Receivable On January 1, 2019, Somerville...Ch. 13 - Notes Receivable On January 1, 2019, Lisa Company...Ch. 13 - Comprehensive Notes Receivable On January 1, 2019,...Ch. 13 - Prob. 25P Ch. 13 - (Appendix 13.1) Derivatives Danburg. Company has a...Ch. 13 - Realized and Unrealized Losses An important part...Ch. 13 - Investments in Securities Cane Company has two...Ch. 13 - Prob. 3C Ch. 13 - Victoria Company has investments in marketable...Ch. 13 - Available-for-Sale Securities The following are...Ch. 13 - Prob. 6C Ch. 13 - You are an accountant for Davanzo Company. The...Ch. 13 - Prob. 8C

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Explain the rationale for using the equity method for an investment in common stock.

Solution Summary: The author explains the rationale for using the equity method for an investment in common stock. The method recognizes that there is a material economic relationship between the Investor Company and Investee Company.

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