Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 4, Problem 7Q
To determine
Explain the manner in which Company T account for the previous 10 percent ownership interest.
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Tree, Inc., has held a 10 percent interest in the stock of Limb Company for several years. Because of the level of ownership, this investment has been accounted for using the fair- value method. At the beginning of the current year, Tree acquires an additional 70 percent interest, which provides the company with control over Limb. In preparing consolidated financial statements for this business combination, how does Tree account for the previous 10 percent ownership interest?
Nuland International Corporation recently acquired 40 percent of Scott Trading Company and approximately accounts for this investment under the equity method. Nuland's corporate controller is in process of determining the company's operating segments for purposes of preparing financial statements for the current year. He has determined that the investment in Scott meets the definition of an operating segment (i.e., Scott earns revenues and incurs expenses, Nuland's chief operating officer reviews Scott's operating results, and Scott provides Nuland with a complete set of financial statements). However, because Nuland does not control Scott, the controller is not sure whether the investment in Scott can be considered a separate operating segment. Required Search current U.S. authoritative accounting literature to determine whether an equity method investment can be treated as an operating segment for financial reporting purposes. If so, explain the conditions under which this would be…
Swifty Corporation purchased a 20% interest in Moss Inc. for $280. This investment gave Swifty significant influence over Moss. During the year, Moss earned net income of $15 and paid
dividends of $5. Assuming the purchase price was equal to 20% of Moss's net carrying amount when it was acquired.
Prepare Swifty's journal entries related to this investment using the equity method. Swifty applies IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Account Titles and Explanation
(To record investment purchase)
(To record investment income)
(To record collection of dividend)
Debit
Credit
Chapter 4 Solutions
Advanced Accounting
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