11th Edition

ISBN: 9780078025877

Author: Theodore E. Christensen, David M Cottrell, Cassy JH Budd Advanced Financial Accounting

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 2, Problem 2.22AP

Equity-Method Income Statement

Wealthy Manufacturing Company purchased 40 percent of the voting shares of Diversified Products Corporation on March 23, 20X4. On December 31, 20X8, Wealthy Manufacturing’s controller attempted to prepare income statements and retained earnings statements for the two companies using the following summarized 20X8 data:

Chapter 2, Problem 2.22AP, Equity-Method Income Statement Wealthy Manufacturing Company purchased 40 percent of the voting

Wealthy Manufacturing uses the equity method in accounting for its investment in Diversified Products. The controller was also aware of the following specific transactions for Diversified Products in 20X8, which were not included in the preceding data:

On June 30, 20X8, Diversified incurred a $5,000 extraordinary loss from a volcanic eruption near its Greenland facility.
Diversified sold its entire Health Technologies division on September 30, 20X8, for $375,000. The book value of Health Technologies division’s net assets on that date was $331,000. The division incurred an operating loss of $15,000 in the first nine months of 20X8.
During 20X8, Diversified sold one of its delivery trucks after it was involved in an accident and recorded a gain of $10,000.

Required

Prepare an income statement and retained earnings statement for Diversified Products for 20X8.
Prepare an income statement and retained earnings statement for Wealthy Manufacturing for 20X8.

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Chapter 2, Problem 2.21AP

Chapter 2, Problem 2.23P

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Chapter 2 Solutions

Advanced Financial Accounting

Ch. 2 - What types of investments in common stock normally...Ch. 2 - Prob. 2.2AQ Ch. 2 - When is equity method reporting considered...Ch. 2 - Prob. 2.4Q Ch. 2 - Prob. 2.5Q Ch. 2 - Prob. 2.6Q Ch. 2 - Prob. 2.7Q Ch. 2 - Prob. 2.8Q Ch. 2 - How does carrying securities at fair value...Ch. 2 - How does the fully adjusted equity method differ...

Ch. 2 - Prob. 2.11Q Ch. 2 - What is the modified equity method? When might a...Ch. 2 - Prob. 2.13AQ Ch. 2 - Prob. 2.14Q Ch. 2 - Prob. 2.15Q Ch. 2 - Prob. 2.16Q Ch. 2 - Prob. 2.17Q Ch. 2 - How are a subsidiary’s dividend declarations...Ch. 2 - Prob. 2.19Q Ch. 2 - Give a definition of consolidated retained...Ch. 2 - Prob. 2.21Q Ch. 2 - Prob. 2.22Q Ch. 2 - Choice of Accounting Method Slanted Building...Ch. 2 - Prob. 2.2C Ch. 2 - Prob. 2.3AC Ch. 2 - Prob. 2.4C Ch. 2 - Prob. 2.5C Ch. 2 - Prob. 2.6C Ch. 2 - Prob. 2.1.1E Ch. 2 - Multiple-Choice Questions on Accounting for Equity...Ch. 2 - Prob. 2.1.3E Ch. 2 - Prob. 2.1.4E Ch. 2 - Prob. 2.1.5E Ch. 2 - Prob. 2.1.6E Ch. 2 - Multiple-Choice Questions on Intercorporate...Ch. 2 - Prob. 2.2.2E Ch. 2 - Prob. 2.3.1E Ch. 2 - Prob. 2.3.2E Ch. 2 - Prob. 2.3.3E Ch. 2 - Prob. 2.3.4E Ch. 2 - Cost versus Equity Reporting Winston Corporation...Ch. 2 - Prob. 2.5E Ch. 2 - Prob. 2.6E Ch. 2 - Prob. 2.7E Ch. 2 - Income Reporting Grandview Company purchased 40...Ch. 2 - Prob. 2.9E Ch. 2 - Carrying an Investment at Fair Value versus Equity...Ch. 2 - Investee with Preferred Stock Outstanding Reden...Ch. 2 - Prob. 2.12AE Ch. 2 - Prob. 2.13AE Ch. 2 - Prob. 2.14E Ch. 2 - Prob. 2.15E Ch. 2 - Prob. 2.16E Ch. 2 - Prob. 2.17E Ch. 2 - Changes ¡n the Number of Shares Held Idle...Ch. 2 - Prob. 2.19P Ch. 2 - Carried at Fair Value Journal Entries Marlow...Ch. 2 - Prob. 2.21AP Ch. 2 - Equity-Method Income Statement Wealthy...Ch. 2 - Consolidated Worksheet at End of the First Year of...Ch. 2 - Consolidated Worksheet at End of the Second Year...Ch. 2 - Prob. 2.25P Ch. 2 - Prob. 2.26P Ch. 2 - Prob. 2.27BP Ch. 2 - Prob. 2.28BP

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Solution Summary: The author explains that the equity method is a way by which externals are informed.

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