FAR 5 Module 2

Question 1

How is a dividend from preferred stock treated under the equity method?

What about liquidating dividend in general?

Answer 1

Liquidating dividend is not a dividend income, it Reduces investment value.

Liquidating dividend: Return of capital, not profit.

Question 2

What is the correct accounting treatment for goodwill in an equity-method investment?

What is the correct accounting

Answer 2

Question 3

What is the equity method? and JE’s

Answer 3

Question 4

How do excess fair values over carrying amounts of inventory and land affect equity in earnings under the equity method?

Inventory Excess:
Land excess:

Answer 4

Inventory excess: Decreases equity in earnings (due to increased COGS).

Land excess: No effect on equity in earnings (no amortization of the land difference).

Question 5

What is the goodwill formula?

Answer 5

Goodwill = (Investment Less NBV) −(FairValueofIdentifiableNetAssets - NBV)