Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 2, Problem 2.1.3E
To determine
Concept Introduction:
The carrying amount means that the actual value or cost of the underlying asset while mentioned during the purchase. The carrying amount of assets is sometimes different from the value stated by market. Under the Equity method, the carrying amount is updated by the share of company income or losses and it decreases the carrying value by any dividends received on the shares.
The correct option for ascertaining the differentiation between the recording of common stock in investee company between the equity method and the fair value method.
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Students have asked these similar questions
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)
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 deduction from the investor’s share of the investee’s profits.
Dividend income.
A deduction from the stockholders’ equity account, Dividends to Stockholders.
A deduction from the investment account.
(AICPA adapted)
Select all that apply
Which of the following items are classified as noncash investing and financing activities? (Check all that apply.)
Conversion of preferred stock to common stock
Lease of assets in a long-term lease transaction
Repayment of a note with cash
Retirement of debt by issuing stock
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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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Which 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_forward2. PAS 28 requires the use of the equity method. Under this method, an investment in associate or joint venture is initially at 2. PAS 28 requires the use of the equity method. Under a. method, an investment in associate or joint venture is initially b. and subsequently measured at Initial measurement 2. En in Subsequent measurement initial cost, adjusted for the investor's share in the investee's changes in a. fair value pe equity cost, adjusted for the investor's share in the investee's changes in equity b. cost C. fair value plus fair value transaction costs d. fair value plus initial cost, adjusted for the investor's share in the investee's changes in transaction costs equity 3.arrow_forwardFor accounting purposes, the method used to account for investments in common stock is determined by: a. the amount paid for the stock by the investor b. whether the acquisition of the stock by the investor was "friendly" or "hostile" c. the extent of an investor's influence over the operating and financial affairs of the investee d. whether the stock has paid dividends in past yearsarrow_forward
- When a business has Available-for-Sale Securities, the account Unrealized Loss on Available-for-Sale Investments should be included in the: Statement of Retained Earnings Income statement Balance sheet as an addition to Long-Term Investments in Stock Balance sheet as a deduction in Stockholders' Equityarrow_forwardIf the combined market value of equity investment at fair value through profit or loss at the end of the year is more than the market value of the same portfolio of trading securities at the beginning of the year, the difference should be accounted for by: a debit to equity investment O reporting an unrealized loss in security investment in the stockholders' equity section of the balance sheet a footnote to the financial statements reporting an unrealized loss in security investments in the income statement O reporting an unrealized gain in security investments in the income statementarrow_forwardAn investment in an associate is normally accounted for using the equity accounting method. This method requires thatthe investment in the associate is__________.Select one:a.initially recorded at cost and not adjusted thereafterb.initially recorded at cost and then adjusted in each subsequent accounting period to reflect the investor’s share ofthe associate’s profit or loss for the yearc.initially recorded at cost and then adjusted to fair value at each subsequent reporting periodd.initially recorded at fair value and the only adjustments are for dividend income that is declared and paidarrow_forward
- QUESTION 49 Which of the following observations is NOT consistent with the accounting for investments in equity securities where there is no significant influence? The investor recognizes income from the investment as dividends are declared by the investee. Changes in the number of investment shares resulting from stock dividends, stock splits, or reverse splits must be formally recorded by the investor. Investments are carried by the investor at fair value. When the securities are remeasured to fair value as of the end of each period, any resulting difference is an unrealized gain or loss to be recognized in income.arrow_forwardIf the employee has the choice as to whether the settlement is in cash or by issuance of equity securities, the share-based payment is accounted as A. A financial liability B. Compound financial instrument C. An equity instrument D. Either equity or financial liability but not botharrow_forwardWhen an investment is acquired, what is the initial reporting basis for all investments in equity securities? Group of answer choices: a) Fair market value b) Equity value c) Discounted present value d) Costarrow_forward
- ansser must be in table format or i will give down votearrow_forwardWhich of the following results in a decrease in the investment account when applying the equity method? Purchase of additional common stock by the investor during the current year. Dividends paid by the investor. Share of gross profit on intra-entity inventory sales for the current year. Net income of the investee. Net income of the investor.arrow_forwardTYPES OF EQUITY Please tell me what type of business the following accounts belong to. Also please provide a definition for each one. Thanks. Additional common stockPreferred stockAdditional preferred stockRetained earningsPaid in capital in excess of parAccumulated other comprehensive incomePremium of common stockPremium of preferred stockDonated capitalCommon stock option warrantarrow_forward
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