Equity Method and Joint Ventures Flashcards
When is the equity method used?
20%-50% and significant influence
Do you use the equity method when ownership percentage is below 20% but have the ability to exercise significant influence?
Yes
What is the journal entry to record an investment?
Dr. Investment in investee, Cr. Cash
What is the investment recorded at?
FV of consideration plus legal fees
What is the journal entry to record an increase y the investor’s/parent’s ownership percentage of earnings of investee?
Dr. Investment in investee, Cr. Equity in earnings/investee income
What is the journal entry to decrease by the investor’s/parent’s ownership percentage of cash dividends from investee?
Dr. Cash, Cr. Investment in investee
What is the journal entry to record investee earnings?
Dr. Investment in investee, Cr. Equity in earnings/investee income
How do you calculate an investment balance?
Beginning balance + Investor’s share of earnings - Investor’s share of dividends = Ending balance
If an investor company owns both common and preferred stock of an investee company how is “significant influence” tested?
By amount of common stock
The calculation of the income from subsidiary to be reported on the income statement includes?
Preferred stock dividends and share of earnings
What do you with the asset fair value difference(premium) over related asset life?
Amortize over the life of the asset
What is the journal entry to record the additional amortization causing the investor’s share of the investee’s income to decrease?
Dr. Equity in investee income, Cr. Investment in investee
Is goodwill amortized or undergo impairment test?
No
What method does investors generally use to account for joint venture investments?
Equity method
