Cost Method Flashcards
cost method
available for sale method
fair value method
“investment in investee”
CV is “original cost” measure by FV of consideration plus legal fees
CV stays the same unless:
- shares of stock in investee are purchased/sold
- liquidating dividend
- basis is adjusted to FV as required for marketable securities
- investee incurs material losses that reduces value
not adjusted for investee earnings or changes in market value
liquidating dividend/return of capital
acc dividends > acc earnings
DR cash
CR investment in investee
record at cost
FV of consideration plus legal fees
DR investment in investee
CR cash
marketable securities
adjusted to FV
DR unrealized holding losses
CR investment in investee
DR investment in investee
CR unrealized holding gains
cash dividends
record as income by investor
record from investee’s RE
DR cash
CR dividend income
stock dividends
not recognized as income, memo entry only
increases number of shares held
decreases cost basis per share
