Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 2, Problem 2.1.1E
To determine
Concept Introduction:
The equity method is the procedure of using company’s investment assets with the associate companies, where the investor holds
The correct option for investor should report increase in investment
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Choose the correct.When an investor uses the equity method to account for investments in common stock, the investor’s share of cash dividends from the investee should be recorded as:
a. A deduction from the investor’s share of the investee’s profits.b. Dividend income.c. A deduction from the stockholders’ equity account, Dividends to Stockholders.d. A deduction from the investment account(AICPA adapted)
Sh4
The Equity Method of accounting for investments:
a)
Requires the investment asset to increase proportionally with the affiliates net income
b)
Requires the investment asset to decrease proportionally with the affiliates net loss
c)
Requires the investment asset to decrease proportionally with dividends received
d)
All of the above
Chapter 2 Solutions
Advanced Financial Accounting
Ch. 2 - What types of investments in common stock normally...Ch. 2 - Prob. 2.2QCh. 2 - Describe an investor’s treatment of an investment...Ch. 2 - How is the receipt of a dividend recorded under...Ch. 2 - How does carrying securities at fair value...Ch. 2 - Prob. 2.6QCh. 2 - Prob. 2.7QCh. 2 - Prob. 2.8QCh. 2 - Prob. 2.9QCh. 2 - Prob. 2.10Q
Ch. 2 - How are a subsidiary’s dividend declarations...Ch. 2 - Prob. 2.12QCh. 2 - Give a definition of consolidated retained...Ch. 2 - Prob. 2.14QCh. 2 - Prob. 2.15QCh. 2 - Prob. 2.16AQCh. 2 - When is equity method reporting considered...Ch. 2 - How does the fully adjusted equity method differ...Ch. 2 - What is the modified equity method? When might a...Ch. 2 - Choice of Accounting Method Slanted Building...Ch. 2 - Prob. 2.2CCh. 2 - Prob. 2.3CCh. 2 - Prob. 2.4CCh. 2 - Prob. 2.5CCh. 2 - Prob. 2.6CCh. 2 - Prob. 2.1.1ECh. 2 - Multiple-Choice Questions on Accounting for Equity...Ch. 2 - Prob. 2.1.3ECh. 2 - Prob. 2.1.4ECh. 2 - Multiple-Choice Questions on Intercorporate...Ch. 2 - Prob. 2.2.2ECh. 2 - Prob. 2.3.1ECh. 2 - Prob. 2.3.2ECh. 2 - Prob. 2.3.3ECh. 2 - Prob. 2.4ECh. 2 - Acquisition Price Phillips Company bought 40...Ch. 2 - Prob. 2.6ECh. 2 - Prob. 2.7ECh. 2 - Carrying an investment at Fair Value versus Equity...Ch. 2 - Carrying an Investment at Fair Value versus Equity...Ch. 2 - Prob. 2.10ECh. 2 - Prob. 2.11ECh. 2 - Prob. 2.12ECh. 2 - Prob. 2.13ECh. 2 - Income Reporting Grandview Company purchased 40...Ch. 2 - Investee with Preferred Stock Outstanding Reden...Ch. 2 - Prob. 2.16AECh. 2 - Prob. 2.17AECh. 2 - Changes ¡n the Number of Shares Held Idle...Ch. 2 - Investments Carried at Fair Value and Equity...Ch. 2 - Carried at Fair Value Journal Entries Marlow...Ch. 2 - Consolidated Worksheet at End of the First Year of...Ch. 2 - Consolidated Worksheet at End of the Second Year...Ch. 2 - Prob. 2.23PCh. 2 - Prob. 2.24PCh. 2 - Prob. 2.25APCh. 2 - Equity-Method income Statement Wealthy...Ch. 2 - Prob. 2.27BPCh. 2 - Prob. 2.28BP
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Similar questions
- 1. What is an intercorporate share investments? a) Significance Influence b) Financial Assets vs Investment in Associates c) Loss of Significance Influence 2. What is are the accounting treatment for Investments in Associates? a) Cost Method b) FV Method c) Equity Method 3. What is the accounting treatment for Impairment Loss of Investments. 0OUT DUT N PEDARB FOR ONLINE PARTICIPATION.arrow_forwardWhich of the following statements is TRUE regarding the equity method? A. The equity method is used for reporting gains or losses for non-strategic investments. B. The investor's share of the associate's dividends declared is reported as revenue. C. The investor's investment in the associate changes in direct relation to the changes taking place in the associate's equity accounts. D. The equity method reports unrealized gains and losses on revaluations to fair value in net income.arrow_forwardView previous attempt On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $16,200. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $96,750. During the next two years, the following information is available for Zip Company: Common Stock Fair Value 2019 2020 2021 Income Dividends Declared $69,000 $7,100 89,000 14,700 (12/31) $324,000 387,000 477,000 Check my work At December 31, 2020, Zip reports a net book value of $289,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020, a. Assume Akron applies the equity method to its Investment in Zip account 1. What amount of equity income should Akron report for 2021? 2. On Akron's December 31, 2021, balance sheet, what amount is reported for the Investment in…arrow_forward
- Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to Group of answer choices Investment in Vallerio Dividend Receivable Dividend Revenue Gain from Investment in Vallerioarrow_forwardUnder the equity method, the receipt of a cash dividend would include a: Group of answer choices credit to Gain on Sale of Investments. credit to Investment in Peas Company. a debit to Investment in Peas Company. debit to Gain on Sale of Invesments.arrow_forwardquestion 1 choose the correct answer from the choicesarrow_forward
- Boehn Corporation accounts for its investment in the common stock of Sells Company under the equity method, since they exert significant influence. Boehn Corporation should ordinarily record a cash dividend received from Sells as a. a reduction of the carrying value of the investment. b. additional paid-in capital. c. an addition to the carrying value of the investment. d. dividend income.arrow_forwardWhich of the following statement is correct اخترأحد الخيارات a. Capital structure is a method of analyzing and comparing substantial future investments and expenditures to determine which ones are most worthwhile b. Working capital refers to the mix of different sources of long-term funds C. None of the statement is correct d. Capital structure of a company may comprise of Equity Share Capital, Preference Share Capital and Debentures e. Capital expenditure decisions do not involve commitment of large sums of money أخل اختباريarrow_forwardMatching type. Match these 4 investments into its corresponding definition below 1. Investment in trading securities. 2. Investment in long-term securities. 3. Investment in associates accounted for using the equity method. 4. Investment in subsidiary Definitions: a. to take advantage of flunctuations of prices in the market b. to exert significant influence over another entity so as to obtain benefits from its operations c. To earn investment income such as interest and dividend and additional source of liquidity such as selling investments as the need arises. d. For trading purposes, for speculative purposes, and to manage risk exposures if used as a hedging instrument e. to exert control over another entity thus enabling the investor to be entitled to variable returns from its involvement with the investee f. to earn rental income and for capital appreciation.arrow_forward
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