2E5 - Equity Method

Question 1

How do you account using the bonus method for admitting a new partner to your business?

Answer 1

Take the total capital of the new partnership (including the FMV of the asset contributed) and multiply it by the credit % allowed to the new guy

Question 2

How are dividends received from investee recorded?

Answer 2

As a reduction to the investment account

Question 3

How are investee earnings recorded?

Answer 3

As an increase to the investment account

Question 4

What percentage of ownership should you use this method?

Answer 4

21%-50%

Question 5

If you don’t have that percentage, but you can still exercise significant influence, should you use this method?

Answer 5

YES

Question 6

How should you record the difference between the NBV and FV of your investment?

Answer 6

Amortize it

Question 7

How do your record preferred stock dividends?

Answer 7

As dividend income! Since it is preferred stock