EBK HORNGREN'S ACCOUNTING
12th Edition
ISBN: 9780134487212
Author: MILLER-NOBLES
Publisher: PEARSON CO
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Chapter 15, Problem E15.15E
To determine
Concept Introduction:
Equity Method for accounting of Investments:
Equity method of accounting for Investments is used when a company purchase shares of the other company ranging between 20% and 50 %, i.e. when ownership is more than 20 % or more than and less than or equal to 50 % and has significant control over the operations of the company.
The investment account is created and all the income that it earned are added to the investment account and when it received dividend from the company whose shares have been bought, the dividend is subtracted from the investment account.
Requirement 1
The method that East Coast Motors should use to account for the investment
Explanation:
The method that East Coast Motors should use to account for the investment is Equity Method of accounting.
This can be explained as in the given information it is provided that –
1. East Coast Motors hold 35 % in the share capital of Boxcar Motors thus it is ranging between 20% to 50 %
2. East Coast Motors has significant influence over the Boxcar.
Since the two conditions are met, so the best suited method for accounting of investment for East Coast Motors is Equity method.
Concept Introduction:
Equity Method for accounting of Investments:
Equity method of accounting for Investments is used when a company purchase shares of the other company ranging between 20% and 50 %, i.e. when ownership is more than 20 % or more than and less than or equal to 50 % and has significant control over the operations of the company.
The investment account is created and all the income that it earned are added to the investment account and when it received dividend from the company whose shares have been bought, the dividend is subtracted from the investment account.
Requirement 1
The method that East Coast Motors should use to account for the investment
Explanation:
The method that East Coast Motors should use to account for the investment is Equity Method of accounting.
This can be explained as in the given information it is provided that –
1. East Coast Motors hold 35 % in the share capital of Boxcar Motors thus it is ranging between 20% to 50 %
2. East Coast Motors has significant influence over the Boxcar.
Since the two conditions are met, so the best suited method for accounting of investment for East Coast Motors is Equity method.
Requirement 2:
To prepare:
| Date | Accounts Titles and Descriptions | Debit (Amount in $) | Credit (Amount in $) |
|---|---|---|---|
| 2018 | |||
| Jan-06 | Equity Investment – Boxcar Motors | 28,00,00,000 | |
| Cash | 28,00,00,000 | ||
| (To record purchase of shares of Boxcar Motors) | |||
| Equity Investment – Boxcar Motors | 31,500,000 | ||
| Equity Investment Income | 31,500,000 | ||
| (To record the East Coast Motors shares of Boxcar Motors' reported income) | |||
| Cash | 15,750,000 | ||
| Equity Investment – Boxcar Motors | 15,750,000 | ||
| (To record the receipt of dividends from Boxcar Motors) |
To determine
Requirement 3:
To prepare:
Investment T-account for Equity Investment --- Boxcar Motors
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Question content area bottom
Part 1
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Chapter 15 Solutions
EBK HORNGREN'S ACCOUNTING
Ch. 15 - Prob. 1QCCh. 15 - Which of the following investments is most likely...Ch. 15 - Prob. 3QCCh. 15 - A company invested $45,000 in Yale Co. stock. The...Ch. 15 - Prob. 5QCCh. 15 - Prob. 6QCCh. 15 - Prob. 7QCCh. 15 - Prob. 8QCCh. 15 - Prob. 9QCCh. 15 - Prob. 10QC
Ch. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Prob. 8RQCh. 15 - Prob. 9RQCh. 15 - Prob. 10RQCh. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 13RQCh. 15 - Prob. 14RQCh. 15 - Prob. S15.1SECh. 15 - Prob. S15.2SECh. 15 - Prob. S15.3SECh. 15 - Prob. S15.4SECh. 15 - Prob. S15.5SECh. 15 - Prob. S15.6SECh. 15 - Prob. S15.7SECh. 15 - Accounting for debt investments Learning Objective...Ch. 15 - Prob. E15.9ECh. 15 - Prob. E15.10ECh. 15 - Prob. E15.11ECh. 15 - Accounting for equity investments Learning...Ch. 15 - Prob. E15.13ECh. 15 - Prob. E15.14ECh. 15 - Prob. E15.15ECh. 15 - Prob. E15.16ECh. 15 - Prob. E15.17ECh. 15 - Prob. P15.18APGACh. 15 - Prob. P15.19APGACh. 15 - Prob. P15.20APGACh. 15 - Accounting for debt investments Learning Objective...Ch. 15 - Prob. P15.22BPGBCh. 15 - Prob. P15.23BPGBCh. 15 - Prob. P15.24CTCh. 15 - Prob. 25CPCh. 15 - Prob. 15.1TIATCCh. 15 - Prob. 15.1DCCh. 15 - Prob. 15.1EICh. 15 - Prob. 15.1FCCh. 15 - Prob. 15.1FSC
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