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ACTG 3110 Lecture Notes - Equity Method

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amberwombat400
30 Sep 2011
School
York University
Department
Accounting
Course
ACTG 3110
Professor
Elizabeth Farrell

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Document Summary

[might as well pick equity since will switch to equity in the future anyway] Fv every b/s date changes go in net income. Consolidate or equity method or the shares were public (fair value) private (cost) Fair value changes go into net income & expense transaction costs. Fv changes will hit net income. Fair value through profit and loss changes go into net income & expense transaction costs. Don"t have to worry about tainting provision, don"t have to worry about intent to hold to maturity. Transfer from acoci to r/e, no impact on i/s. Held-to-maturity (must be careful about intent to hold to maturity in part v) Oci, realized changes hit net income and then go to r/e. Transaction costs are then get cost expensed for fv, capitalized for cost or amortized cost expensed for fv, capitalized for cost or amortized cost. Must record at fair value (presume you can estimate fair value somehow)

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Related Questions

100% Ownership Land Transfer (Non-Depreciable) • On 3/31/X5,Parker Inc. sold land costing $40,000 to its 100% owned subsidiary,Stubben Inc., for $100,000.

• In this example, we’ll do consolidation worksheet entrieswithout adjusting the equity method accounts.

• This is the modified equity method.

• This is meant to be a conceptual exercise only. (We willswitch to the fully adjusted equity method next.)

Required:

1. Prepare the consolidation entry(ies) as of 12/31/X5 and12/31/X6.

2. Prepare the consolidation entry at 12/31/X7, assuming thatStubben sold the land in 20X7 for $120,000.

Using the equity method in accounting for investments hasbeen called "One Line Consolidation." Why? Is this the best methodand why?

For each of the following situations, select the best answerthat applies to consolidating financial information subsequent tothe acquisition date:

(A) Initial value method.

(B) Partial equity method.

(C) Equity method.

(D) Initial value method and partial equity method but notequity method.

(E) Partial equity method and equity method but not initialvalue method.

(F) Initial value method, partial equity method, and equitymethod.

_____1. Method(s) available to the parent for internalrecord-keeping.

_____2. Easiest internal record-keeping method to apply.

_____3. Income of the subsidiary is recorded by the parent whenearned.

_____4. Designed to create a parallel between the parent'sinvestment accounts and changes in the underlying equity of theacquired company.

_____5. For years subsequent to acquisition, requires the *Centry.

_____6. Uses the cash basis for income recognition.

_____7. Investment account remains at initially recordedamount.

_____8. Dividends received by the parent from the subsidiaryreduce the parent's investment account.

_____9. Often referred to in accounting as a single-lineconsolidation.

_____10. Increases the investment account for subsidiaryearnings, but does not decrease the subsidiary account for equityadjustments such as amortizations.