FAR 4 - M2 EQUITY METHOD

Question 1

If a company acquires more than 20% of o/s non voting preferred stock, what method of recoring the investment s/b used

Answer 1

Fair value method because significant influence cannot be exercised by holding non-voting stock/preferred stock

Question 2

If the investee declared net income and paid dividends to preferred stkholders, how much NI s/b calculated and available to common stock holders

Answer 2

Net income XXXXXX
Less: Div to pref (xxxxxxxx)
Net income avail to common S/H xxxxxxxx

Question 3

The excess of FV over BV is depreciated over the useful life of the asset`

Answer 3

FV 440000
BV 400000
excess 40000

Depn = 40000 / useful life of asset

Question 4

If a co who has no significant influence or owns less than 20% investment in common stock, how do you record the liquidating dividend

Answer 4

Liquidating dividend is always recorded as a reduction of investments

Cash - xxx
Investment in stock - xxx