Test bank and solution of reporting intercorporate investment (1)
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Test bank and solution of reporting intercorporate investment (1)
Chapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)ATE INVESTMENTS AND CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES WITH NO DIFFERENTIALANSWERS TO QUESTIONSQ2-1 (a) An investment in the voting common stock of another company is reported on an equity-method basis when the investor is able to significantly Influence the operating and financial policies Test bank and solution of reporting intercorporate investment (1)of the investee.(b) The cost method normally is used for investments in common stock when the investor does not have significant influence and for invTest bank and solution of reporting intercorporate investment (1)
estments in preferred stock and other securities. The cost method may also be used by the parent company for bookkeeping purposes when the investor owChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)or has the ability to influence the operating and financial policies of the investee. Representation on the board of directors of the investee is perhaps the strongest evidence, but other evidence such as routine participation in management decisions or entering into formal agreements that give the Test bank and solution of reporting intercorporate investment (1)investor some degree of influence over the investee also may be used.Q2-3A Equity-method reporting should not be used when (a) the investee has initiaTest bank and solution of reporting intercorporate investment (1)
ted litigation or complaints challenging the investor's ability to exercise significant influence, (b) the investor signs an agreement surrendering imChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1), (d) the investor IS not able to acquire the Information from the investee, or (e) the investor tries and fails to gain representation on the board of directors.Q2-4 The balances will be the same at the date of acquisition and in the periods that follow whenever the cumulative dividends paid by the Test bank and solution of reporting intercorporate investment (1) Investee equal or exceed the investee's cumulative earnings since the date of acquisition. The latter case assumes there are no other adjustments neeTest bank and solution of reporting intercorporate investment (1)
ded under the equity method for amortization of differential or other factorsQ2-5 When a company has used the cost method and purchases additional shaChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)eding periods. Dividend income is replaced by income from the investee and dividends received are treated as an adjustment to the investment accountQ2-6 An investor considers a dividend to be a liquidating dividend when the cumulative dividends received from the investee exceed a proportionate share Test bank and solution of reporting intercorporate investment (1) of the cumulative earnings of the investee from the date ownership was acquired For example, an investor would consider a dividend to be liquidatingTest bank and solution of reporting intercorporate investment (1)
if It purchases shares of another company in early December and receives a dividend at year-end substantially in excess of its portion of the investeeChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)Q2-7 Liquidating dividends decrease the investment account in both cases. All dividends are treated as a reduction of the investment account when equity-method reporting is used. When the cost method IS used and dividends are received in excess of a proportionate share of investee earnings Since acq Test bank and solution of reporting intercorporate investment (1)uisition, they are treated as a reduction of the investment account as well.Q2-8 A dividend is treated as a reduction of the investment account underTest bank and solution of reporting intercorporate investment (1)
equity-method reporting. Unless it is a liquidating dividend, it is treated as dividend income under the cost methodQ2-9 Dividends received by the invChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)ecorded as an unrealized gain or loss under the fair value method. The fair value method differs from the equity method in two respects. Under the equity method the investor's share of the earnings of the investee are included as investment income and dividends received from the investee are treated Test bank and solution of reporting intercorporate investment (1) as a reduction of the investment account.Q2-10A When the modified equity method is used, a proportionate share of subsidiary net income and dividendsTest bank and solution of reporting intercorporate investment (1)
is recorded on the parent's books and an appropriate amount of any differential is amortized each period. In some situations, companies also choose nChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)lso are adjusted for unrealized profits and any other items that are needed to bring the investor’s net income into agreement with the income to the controlling interest that would be reported if consolidation were usedQ2-11 A one-line consolidation implies that under equity-method reporting the inv Test bank and solution of reporting intercorporate investment (1)estor's net income and stockholders' equity will be the same as if the investee were consolidated. Income from the investee is included in a single liTest bank and solution of reporting intercorporate investment (1)
ne in the Investor's income statement and the investment is reported as a single line in the investor's balance sheet.Q2-12AThe term modified equity mChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)rtion of any differential. Unlike the fully adjusted equity method, no adjustment for unrealized profit on intercompany transfers normally is made on the investor's books (In some situations, companies also choose not to amortize the differential.) When an investee is consolidated for financial repo Test bank and solution of reporting intercorporate investment (1)rting purposes, the investor may not feel it is necessary to record fully adjusted equity method entries on its books since income from the investee aTest bank and solution of reporting intercorporate investment (1)
nd the balance in the investment account must be eliminated in preparing the consolidated statementsQ2-13A The investor reports a proportionate share Chapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)nd causes the balances reported by the parent or subsidiary company to change Consolitation entries, on the other hand, are not recorded on the books of the companies. Instead, they are entered in the consolidation worksheet so that when the amounts included In the consolidation entries are applied, Test bank and solution of reporting intercorporate investment (1) the appropriate balances for the consolidated entity are reported.44959Chapter 02 - Reporting Intercoiporate Investments and Consolidation of WhollyTest bank and solution of reporting intercorporate investment (1)
Owned Subsidiaries with no DifferentialQ2-15 Each of the stockholders' equity accounts of the subsidiary is eliminated in the consolidation process. TChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)assigned to the noncontrolling shareholders is reported indirectly in the balance assigned to the noncontrolling shareholders.Q2-16 Additional entries are needed to eliminate all income statement and retained earnings statement effects of intercorporate ownership and any transfers of goods and servi Test bank and solution of reporting intercorporate investment (1)ces between related companies.Q2-17 Separate parts of the consolidation worksheet are used to develop the consolidated income statement, retained earnTest bank and solution of reporting intercorporate investment (1)
ings statement, and balance sheet. All consolidation entries needed to complete the entire worksheet normally are entered before any of the three statChapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)gs statement portion of the worksheet. When the retained earnings portion is completed, the ending balances are carried forward and entered in the consolidated balance sheet portion of the worksheet.Q2-18 None of the dividends declared by the subsidiary are included in the consolidated retained earn Test bank and solution of reporting intercorporate investment (1)ings statement. Those which are paid to the parent have not gone outside the consolidated entity and therefore must be eliminated in preparing the conTest bank and solution of reporting intercorporate investment (1)
solidated statementsQ2-19 Consolidated net income includes 100 percent of the revenues and expenses of the individual consolidating companies arising Chapter 02 - Reporting Intercorporate Iuvestn>ents and Consolidation of Wholly Owised Subsidiaries with no DifferentialCHAPTER 2REPORTING INTERCORPORA Test bank and solution of reporting intercorporate investment (1)tity accruing to the parent company shareholders.Q2-21 Consolidated retained earnings at the end of the period is equal to the beginning consolidated retained earnings balance plus consolidated net income attributable to the controlling interest, less consolidated dividends. Under the fully adjusted Test bank and solution of reporting intercorporate investment (1) equity method, consolidated retained earnings should equal the parent company’s retained earnings.Q2-22 The retained earnings statement shows the incTest bank and solution of reporting intercorporate investment (1)
rease or decrease in retained earnings during the period. Thus, income for the period is added to the beginning balance and dividends are deducted inGọi ngay
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