Equity Method (F4:M2)

Question 1

how is goodwill that is created by an investment accounted for under the equity method treated (amortized or tested for impairment)?

Answer 1

neither! the entire investment is subject to the impairment test

Question 2

how is a liquidating dividend accounted for?

Answer 2

as a reduction of the investment account.

Question 3

how are investments in preferred stock accounted for?

Answer 3

fair value method because they do not allow for significant influence (dividend income recorded)

Question 4

generally, when is equity method used (% of ownership)?

Answer 4

20-50% of common stock

Question 5

what is the journal entry to record amortization of identifiable excess of FV over BV of asset

Answer 5

income from sub (d)
investment in sub (c)

*excess caused by land is not amortized