If Company A purchases 45% of the outstanding common stock of Company B, the investment
in Company B should be accounted for
a. at fair value.
b. at cost.
c. as a consolidated subsidiary.
d. as an equity method investment.
e. None of the above. - ANS d. as an equity method investment.
For securities carried at fair value, an investee's dividends declared would ____
a. be eliminated in consolidation.
b. be the investor's income from investment.
c. decrease the investor's investment account.
d. increase the investor's investment account.
e. None of the above. - ANS b. be the investor's income from investment.
Under the equity method, an investee's dividends declared would
a. be eliminated in consolidation.
b. be the investor's income from investment.
c. decrease the investor's investment account.
d. increase the investor's investment account.
e. None of the above. - ANS c. decrease the investor's investment account.
Under the equity method, an investee's losses would a. never reduce the investor's income.
b. normally reduce the investor's income.
c. always reduce the investor's income.
d. always be eliminated in consolidation.
e. None of the above. - ANS c. always reduce the investor's income.
On 1/1/X4, Phillip invested $650,000 in Sleeper (25% owned). For 20X4, Sleeper:
(1) earned $360,000,
(2) declared dividends of $240,000, and —> Div Receivable
(3) paid dividends of $160,000.
(4) fair value of investment at year end is $655,000.
What amounts does Phillip report? - ANS Fair Value Equity
Investment income for 20X4 $90,000 (25%x360,000)
Investment in Sleeper at year-end $680,000
Retained earnings increase $90,000
A primary benefit of consolidated financial statements is that they ____
a. provide information directly applicable to the needs of regulators.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ALICE12. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.99. You're not tied to anything after your purchase.
