How are investments recorded under the cost method at time of purchase and year end - ANS
At cost when purchased and at market value at year end
Cost method is used when - ANS Significant influence has not been established and they don't
have ability to control or exercise significant influence over the investee
Equity method is used - ANS To account for investments when investor exercises significant
influence over operating and financing policies of investee and consolidation is not appropriate
Equity method investment in sub = - ANS Investor's share of sub's net assets
Under equity method how are investments recorded for investor - ANS Investor reports
investment in sub as line item on BS instead of reporting all assets and liabilities of sub
individually in consolidated FS
Consolidation - ANS When an entity exercises control over another, consolidation is required
Consolidation is appropriate when - ANS Parent-sub relationship exists
Consolidation includes - ANS Eliminating all intercompany transactions
Cost method is carried at - ANS Historical cost on BS until investment is sold
When do you recognize income under cost method - ANS When dividend has been declared
(no legal claim before dividend has been declared)
Liquidating dividends occur when - ANS Investor's share of all dividends declared by investee
exceed investee's net income since acquisition (cumulative net income)
What does investor do to their investment when there is a liquidating dividend under cost
method - ANS Reduces their investment by investor's share of excess net income over the
dividend
Once investor has recorded a liquidating dividend, comparison in future periods between
cumulative earnings and dividends of investee should be based on - ANS Date of last
liquidating dividend, not date investor acquired stock
If investor purchases additional shares greater than __%, they should - ANS 20%; convert from
cost method to equity method; restate balance to equity method balance
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