Advanced Accounting Chapter 3 EXAM GRADED A+

Advanced Accounting Chapter 3 EXAM GRADED A+ equity method - ANSWERFull accrual accounting—creates a total income figure reflective of the entire combined business entity partial equity method - ANSWERCash basis accounting—easy to apply and gives a good measurement of cash flows generated by the investment. initial value method - ANSWERAccrual accounting without equity adjustments—usually gives balances approximating consolidation figures but easier to apply than equity method when a parent company uses the equity method to account for an investment in a subsidiary, why do both the parents net income and retained earnings account balances agree with the consolidated totals - ANSWERThe equity method parallels consolidation. Thus, the parent's net income and retained earnings each year will equal the consolidated totals Several years ago, Jenkins Company acquired a controlling interest in Lambert Company. Lambert recently borrowed $100,000 from Jenkins. In consolidating the financial records of these two companies, how will this debt be handled? - ANSWERLambert's loan payable and the receivable held by Jenkins are intra- entity accounts. The consolidation process offsets these reciprocal balances.