3 - Cost and Equity Method Flashcards
1
Q
Equity Method (journal entries)
A
1) Buy:
Investment 1000 (750 BV; 150 FMV FMV>BV; 100 GW)
Cash 1000
2) Earnings
Investment 36 (120 x 30%) (B/S)
Equity in earnings 36 (I/S)
3) Dividend
Cash 12
investment 12
4) Amor./dep/impair.
Equity in earnings 25
Investment 25
2
Q
Cost Method (journal entries)
A
1) Buy:
Investment 1000
cash 1000
2) investee earns money:
no entry
3) dividend
cash 12
div. income 12 (DI = IS (n) section
4) amor./dep/impairment:
no entry
3
Q
Changes in ownership percentages
A
Equity to cost: - use cost method going forward (prospective)
Cost to Equity (ex. 10% to 40%) - Retrospectively apply the equity method but only for the % you previously owned (10%); this requires a prior period adj. to reported income.
