Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 3, Problem 1Q
To determine
Describe each of these methods for recording investment, and indicate their advantages and disadvantages.
Expert Solution & Answer
Answer to Problem 1Q
The methods for recording investment are as follows:
- Equity method
- Initial value method
- Partial equity method
Explanation of Solution
Equity method:
The equity method is used when the investor is having the significant influence and the investment balance is reduced by the amount of dividend paid. The method is however best method for accounting of consolidated investments but it is the difficult method to use.
Initial value method:
The dividends are recorded as income under the initial value method. The initial value method differs from the equity method as the dividend is not reduced from the value of the investment.
Partial equity method:
The partial equity method is not that appropriate as the equity method and the fair value method amortizations are accounted under this method.
The partial equity method is however easier than the equity method.
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Students have asked these similar questions
Hobbes Corporation’s purchase of stock of Tiger Company gave Hobbes voting control over Tiger. A portion of the amount Hobbes paid reflects the fact that Tiger's inventories have a market value in excess of their book value.How should this portion of the cost be accounted for by Hobbes Corporation?
Select one:
a. Reported as goodwill on the balance sheet of Hobbes Corporation
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d. Added to the inventory cost on Hobbes's consolidated balance sheet
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A. Technological dependency
B. Material intra-entity transactions
C. Interchange of personnel
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Hobbes Corporation’s purchase of stock of Tiger Company gave Hobbes voting control over Tiger. A portion of the amount Hobbes paid reflects the fact that Tiger's inventories have a market value in excess of their book value.How should this portion of the cost be accounted for by Hobbes Corporation?
Select one:
a. Included in the carrying value of the investment until disposition of the stock
b. Amortized against investment revenue over the remaining useful life of the investment
c. Reported as goodwill on the balance sheet of Hobbes Corporation
d. Added to the inventory cost on Hobbes's consolidated balance sheet
Chapter 3 Solutions
Advanced Accounting
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