The Equity Method of Accounting for Investments

Question 1

Fair Value Method: These shares are brought in anticipation of ____ or ____

Answer 1

cash dividends or appreciation of stock market values

Question 2

Fair Value Method: Such investments are recorded at ____

Answer 2

cost and periodically adjusted to fair value
-changes in fv are recog as inc
-dividends declared on the securities are recognized as inc

Question 3

Fair Value Method: Basic Principles

Answer 3

-initial investments in equity securities are recorded at costs and subsequently adjusted to fair value if fair value is readily determinable
-changes in the fair values of equity securities during reporting period are recognized as income
-dividends declared on the equity securities are recognized as income

Question 4

cost method are investments in equity securities without ____

Answer 4

investments in equity securities without readily determinable fair values

Question 5

cost method: recorded at

Answer 5

-cost
-periodically assess for impairment using a “qualitative” approach. If deemed to be impaired, then adjust to estimated fv
-is a transaction involving an identical or similar investment occurs, and it provides evidence of a different fair value, the cost basis of the investment should be adjusted (the difference between the og cost and the new fair value is recognized in the income statement as a gain or loss with the difference going to income)