FRA

Question 1

Describe the equity method

Answer 1

• investment is initially recognized on the investor’s balance sheet
• investor’s proportionate share of investee earnings is reported within a single line item on its income statement

Question 2

Under the equity method, if the purchase price is more than the book value how is the excess allocated?

Answer 2

They are allocated to its proportionate share in specific assets

1. Amounts allocated to inventory are expensed
2. Amounts allocated to depreciable or amortizable assets are capitalized and subsequently expensed over an appropriate amount of time
3. Land
4. Goodwill