FAR 3 Consolidation

Question 1

Degree of control

Answer 1

a. Cost method - <

Question 2

Cost method - journal entries

Answer 2

1. Record at cost

Investment in investee
Cash
2. Marketable securities - adjust to FV

Unrealized holding losses (OCI)
           Investment in investee
OR
Investment in investee 
             Unrealized holdings gain

3. Liquidating dividends received

Cash
       Investment in investee 
OR
Cash
        Dividend income (retained earnings)
         Investment in investee
4. Dividend

Cash
        Dividend income (retained earnings)

Question 3

Equity method - journal entries

Answer 3

1. Record at cost

Investment in investee
Cash

2. Increase in ownership % of earnings of investee

Investment in investee
Equity in earnings/investee income

3. Cash dividends

Cash
Investment in investee

4. Investee earnings

Investment in investee
Equity in earnings/investee income

Question 4

Amortize asset Fair Value difference over related asset life

Answer 4

FV-BV = asset difference
Amortize depreciation

Equity in investee income
Investment in investee

Question 5

Goodwill

Answer 5

Purchase price - FV = goodwill

Do not amortize

Question 6

Joint venture accounting

Answer 6

• uses equity method