FINANCIAL ACCOUNTING 9TH
16th Edition
ISBN: 9781308821672
Author: Libby
Publisher: MCG/CREATE
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Chapter A, Problem 6Q
Under the equity method, why does the investor company measure revenue on a proportionate basis when income is reported by the affiliate company rather than when dividends are declared?
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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?
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.
When using the equity method of accounting, when is revenue recorded on the books of the investor company?a. When the fair value of the affiliate stock increases.b. When a dividend is received from the affiliate.c. When the affiliate company reports net income.d. Both b and c above.
Chapter A Solutions
FINANCIAL ACCOUNTING 9TH
Ch. A - Prob. 1QCh. A - Explain the difference in accounting methods used...Ch. A - Explain how bonds held to maturity are reported on...Ch. A - Explain the application of the cost principle to...Ch. A - Under the fair value method, when and how does the...Ch. A - Under the equity method, why does the investor...Ch. A - Prob. 7QCh. A - Prob. 8QCh. A - Prob. 9QCh. A - Company X owns 40 percent of Company Y and...
Ch. A - Prob. 2MCQCh. A - Dividends received from stock that is reported as...Ch. A - Prob. 4MCQCh. A - Prob. 5MCQCh. A - When using the equity method of accounting, when...Ch. A - Prob. 7MCQCh. A - Prob. 8MCQCh. A - Which of the following is true regarding the...Ch. A - Prob. 10MCQCh. A - Matching Measurement and Reporting Methods Match...Ch. A - Prob. 2MECh. A - Prob. 3MECh. A - Prob. 4MECh. A - Prob. 5MECh. A - Prob. 6MECh. A - Prob. 7MECh. A - Prob. 8MECh. A - Prob. 9MECh. A - Prob. 10MECh. A - Prob. 11MECh. A - Prob. 1ECh. A - Prob. 2ECh. A - Recording Transactions in the Available-for-Sale...Ch. A - Prob. 4ECh. A - Prob. 5ECh. A - Reporting Gains and Losses in the Trading...Ch. A - Prob. 7ECh. A - Prob. 8ECh. A - Prob. 9ECh. A - Prob. 10ECh. A - Prob. 11ECh. A - Prob. 1PCh. A - Prob. 2PCh. A - Prob. 3PCh. A - Prob. 4PCh. A - Prob. 5PCh. A - Comparing Methods to Account for Various Levels of...Ch. A - Prob. 7PCh. A - Recording Investments for Significant Influence LO...Ch. A - Prob. 9PCh. A - Prob. 10PCh. A - Prob. 11PCh. A - Prob. 1APCh. A - Prob. 2APCh. A - Reporting Passive Investments During January 2017,...Ch. A - Prob. 4APCh. A - Prob. 5APCh. A - Prob. 6APCh. A - Prob. 1CONCh. A - Finding Financial Information Refer to the...Ch. A - Prob. 2CPCh. A - Prob. 3CPCh. A - Prob. 4CPCh. A - Prob. 5CPCh. A - Prob. 6CP
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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
- Explain thoroughly why it is the answer.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_forwardUnder the equity method, dividends received from the affiliated company are not recorded as revenue. Recording dividends as revenue would involve double counting. Explain.arrow_forward
- Which is a correct statement below? A. Equity is the residual interest in the liabilities of the entity after deducting all of its assets.B. Subscriptions receivable shall preferably be reflected as a deduction from the related subscribed share capital.C. Share premium is also known as capital stock.D. A deficit is a credit balance in retained earnings.arrow_forward6. What is the effect on the financial statement elements if an SME receives goods or services in an equity-settled share-based payment transaction? a. Increase in assets and increase in income b. Increase in assets and increase in liability c. Increase in assets and increase in equity d. No effect on any of the financial statement elementsarrow_forwardComprehensive income includes the following except: A. revenues and gains B. expense and loss C. unrealized gain or loss on trading securities D. dividends received from preference share E. answer not givenarrow_forward
- Which of the following tests restricts the amount of dividends that a corporation may declare? a. Cash flow test b. Book value test c. Solvency test d. Income to expense ratio testarrow_forwardHow would you describe a change that a company makes from the equity method to the fair-value method of accounting for investments?arrow_forwardWhich of the following is classified as a financing activity? Receipt of dividend income Receipt of interest on loan receivable Payment of dividends Investment in another company’s stockarrow_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_forwardWhich 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_forwardPlease do not give solution in image format ?arrow_forward
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