F4/M2 Equity Method Flashcards
When is it not appropriate to use the Equity Method and you own 20-50% equity?
- Bankruptcy of subsidiary
- Investment is temporary
- “Standstill agreement”
- Another small group has majority interest
- Investor cannot obtain financial information
- Cannot obtain representation on the Board
(T/F): Equity method accounting = Bank account, accrual accounting
True
JE - Record share of earnings from equity method investee
Dr: Investment in Investee
Cr: Equity Earnings/Investee income
(T/F): The cost of the Investment in Investee = FV of consideration (+) legal fees
True
(T/F): Stock dividends are a memo entry only when using equity method accounting
True
Differences between the price paid for the investment and the book value of the investees net assets requires an adjustment to the investment account
True
JE - Amortize the premium paid for an investment under the equity method
- Decrease share of investment income -
Dr: Equity in Investment Income
Cr: Investment in Investee - Like a bank service charge
- Do not amortized Land or Goodwill
(T/F): Any premium from land is not amortized
True
(T/F): If Fair Value of the investment falls below Carrying Value, record an impairment if it is other than temporary under the Equity Method. The impairment can not be reversed.
True
Transition from Fair Value Method of reporting investments to the Equity Method of reporting investments
- Add additional costs to acquire
- Do not restate, use the equity method prospectively
- Recognize unrealized holding G/L in earnings if the investment was previously held as an AFS security under the Fair Value Method
(T/F): Any Goodwill created in an investment accounted for under the equity method is ignored. It is neither amortized nor tested for impairment.
True
(T/F): Record Income under the Equity method quarterly
True
