Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 3, Problem 3Q
To determine
Explain the reason for why both the parent’s Net Income and
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If the entity is using the equity method to account for investment in subsidiary, the entry to recognize dividends received from the subsidiary will:
a.Be recognized in profit or loss
b.Increase the carrying amount of investment
c.Decrease the carrying amount of investment
d.Be recognized in other comprehensive income
How is the investor’s share of gross profit on intra-entity sales calculated? Under the equity method, how does the deferral of gross profit affect the recognition of equity income?
The method of accounting for subsidiaries where investment income is limited to dividends received is the
a.
cost method.
b.
simple equity method.
c.
investment method.
d.
sophisticated equity method.
Chapter 3 Solutions
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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
- If a company uses the equity method to account for an investment in another company, which of the following is true? Income is combined proportionate to ownership. Income to the investing company consists of actual dividends, interest, or capital gains. All of the investee’s income is included in the investor’s income except for income relating to intra-entity transactions. Income of the investee is included in the investor’s income but reduced by any dividends paid to the investor.arrow_forwardThe parent company records its share of subsidiary’s income byA. Crediting Investment in Subsidiary Company.B. None of theseC. Crediting Equity is Subsidiary Income.D. Debiting equity in Subsidiary Income.arrow_forwardUnder the equity method of accounting, a parent company's journal entry to record a dividend declared by the subsidiary includes a debit to the Cash account and a credit to the investment account Select one: True Falsearrow_forward
- 4. What method normally is used to account for the ownership of a subsidiary on the parent’s financial records? a Cost model/methodb. Equity methodc. Consolidationd. Either cost model/method or equity methodarrow_forwardThe method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method.arrow_forwardHow is the amount assigned to the non-controlling interest normally determined when a consolidated balance sheet is prepared immediately after a business combination?arrow_forward
- When an investor uses the cost method to account for investments in subsidiary, cash dividends received by the investor from the investee should normally be recorded as: A. Ignored. B. Dividend income. C. An addition to the investor’s share of the investee’s profit. D. A deduction from the investment account E. A deduction from the investor’s share of the investee’s profit.arrow_forwardBased on which of the following concepts, is share capital account shown on the liability side of a balance sheet? Business entity concept Money measurement concept Cost concept Going concern conceptarrow_forwardWhich of the following should be presented in the statement of changes in equity? A. Distributions to owners B. Investments by owners C. Change in ownership interest in subsidiary that does not result in a loss of control D. All of these are presented in the statement of changes in equityarrow_forward
- Which of the following represents an obligation of the company? Liability Asset Owners' Equity Liabilities of its competitorsarrow_forwardWhat is a noncontrolling interest? Select one: A. A component of debt representing amounts owed to a subset of investors B. Amounts distributed to investors that own less than a controlling interest C. The portion of a subsidiary’s net assets not owned by the parent-company D. An amount equal to investor contributions less dividends distributedarrow_forwardCan you give me an example of intra-equity asset transactions? How do you account for intra-equity asset transactions in consolidated financial statementsarrow_forward
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