Equity Method/Joint Ventures Flashcards
equity method
“significant influence” or 20-50% ownership
bank account analogy
significant influence
largest shareholder, majority of board
record at cost
FV of consideration plus legal fees
DR investment in investee
CR cash OR common stock and APIC
investment in investee
adjusted/increased with investee’s earnings
investee’s earnings
adjusts investor’s ownership percentage (B/S)
treated as income by investor (I/S)
DR investment in investee
CR equity in earnings/investee income
cash dividends
decreases investor’s ownership percentage, reported on B/S
DR cash
CR investment in investee
preferred cash dividends are recognized as dividend income, reported on I/S
stock dividends
not considered income, memo entry only
stock investments
common stock
- ownership/influence
- share of income (after preferred dividends)
preferred stock
- dividend income
asset FV difference (premium)
FV - BV of net assets acquired purchase price allocated in this order: - NBV - FV (amortized over asset life) - goodwill
amortizing premium
reduces investment asset and earnings
DR equity in investment income
CR investment in investee
land and goodwill not amortized
unconsolidated investment > 50%
equity method required
joint venture
uses equity method
from cost to equity method
equity in investee income calculation
investment account and RE account are adjusted retrospectively for prior period %age using cost method
JE for retrospective adjustment
cost to equity
DR investment in investee (diff b/w balance using equity vs cost)
CR retained earnings (adjustment to RE)
CR unrealized loss on AFS (out of OCI)
goodwill impairment
only tested for impairment if have controlling interest (50% or above)
