Question

True and False: GAAP allows companies that would normally use the equity method the option of...

True and False:

  1. GAAP allows companies that would normally use the equity method the option of using the fair value method, assuming the value of the stock is readily determinable.
  2. FRS allows companies that would normally use the equity method the option of using the fair value method, assuming the value of the stock is readily determinable.
  3. the concepts of significant influence and control under GAAP are very similar to the concepts used in IFRS.

Journal entry

4.Big company receives $500 in dividends from Little. Assume Big has made no prior entry to create a receivable, and Big accounts for Little using the equity method of accounting. (3 points)

5.Same as question # 4, but Big uses the fair value method of accounting for its investment in Little.

6.Same as question # 4, but Big uses the cost method of accounting for Little.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

4. The equity method is a type of accounting used for intercorporate investments. This method is used when the investor holds significant influence over the investee but does not exercise full control over it

Securities available for sale A/c Dr $500

To Cash A/C $500

5. The Fair value method is a type of accounting used when a company is holding less than 20% in other company

Investment in Little A/c Dr $500

To Cash A/C $500

6.The cost method is a type of accounting used for investments. This method is used when the investor exerts little or no influence over the investment that it owns

Investment in Little A/c Dr $500

To Cash A/C $500

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
GAAP allows companies that would normally use the equity method the option of using the fair...
GAAP allows companies that would normally use the equity method the option of using the fair value method, assuming the value of the stock is readily determinable. IFRS allows companies that would normally use the equity method the option of using the fair value method, assuming the value of the stock is readily determinable. the concepts of significant influence and control under GAAP are very similar to the concepts used in IFRS.
According to GAAP, companies can elect the fair value option when accounting for many investments. Required:...
According to GAAP, companies can elect the fair value option when accounting for many investments. Required: Describe how accounting for a held-to-maturity investment, an available-for-sale investment, and an equity-method investment is affected by a company electing the fair value option.
Exercise 12-27 (Algo) Fair value option; equity method investments [LO12-6, 12-8] As a long-term investment at...
Exercise 12-27 (Algo) Fair value option; equity method investments [LO12-6, 12-8] As a long-term investment at the beginning of the 2021 fiscal year, Florists International purchased 20% of Nursery Supplies Inc.’s 4 million shares of capital stock for $60 million. The fair value and book value of the shares were the same at that time. The company realizes that this investment typically would be accounted for under the equity method, but instead chooses to measure the investment at fair value....
The Big company spent $1,000,000 to obtain a 25% stake in Little. At that date, the...
The Big company spent $1,000,000 to obtain a 25% stake in Little. At that date, the net book value of Little’s assets and liabilities was $3,900,000. Little also had machines with remaining lives of 4 years, which had a fair value in total $100,000 higher than their book values. Big accounts for its investment under the equity method. Which of the following is correct? Each year, Big will record its 25% share of Little’s income, and will make no special...
1The costs of issuing debt under GAAP require a*That the debit of the issuance costs be...
1The costs of issuing debt under GAAP require a*That the debit of the issuance costs be compensated with the debt to the lowest bonds b*The debit of issuance costs is offset against the debt to increase the bonds payable c*A debit to the debt issuance asset account which is amortized during the duration of the debt 2-GAAP requires that if the company chooses to report bonds at fair value they a*They must report the changes as the increase or decrease...
IFRS U.S. GAAP 4. May use either cost model or revaluation model to a PPE class....
IFRS U.S. GAAP 4. May use either cost model or revaluation model to a PPE class. 4. Require cost model and prohibit revaluation model for PPE. 5. Each part of an item of PPE with a cost that is significant in relation to the total cost shall be depreciated separately 5. Take a ‘holistic view’ of PPE depreciation instead of the IFRS ‘component’ approach. Using the chart above: Discuss which accounting treatment (IFRS, U.S. GAAP, or another new treatment from...
8. According to IAS 39 and IFRS 9, which is true about the classification of financial...
8. According to IAS 39 and IFRS 9, which is true about the classification of financial assets and financial liabilities? A. Bonds payable should be classified as financial liability measured as fair value B. Held to maturity investments should be classified as financial assets measured as fair value. C. Loans and receivables should be classified as financial assets measured as amortized cost. D. Deposits from customers should be classified as financial liabilities measured as fair value. 9. Under IFRS, if...
1. In​ 2017, Gigajoule Corporation used the equity method to account for a​ 25% ownership interest...
1. In​ 2017, Gigajoule Corporation used the equity method to account for a​ 25% ownership interest in Megawatt Corporation. If Megawatt Corporation reports​ $400,000 of income and pays​ $80,000 of dividends in​ 2017, the net effect of the entries made by Gigajoule Corporation in 2017 will be​ to: A. reduce the Investment account by​ $320,000 B. increase the Investment account by​ $320,000 C. reduce the Investment account by​ $80,000 D. increase the Investment account by​ $80,000 2. Investments at fair...
Goodwill, Equity Method, Eliminating Entries, First Year On January 1, 2020, Playtel Inc. acquired 75 percent...
Goodwill, Equity Method, Eliminating Entries, First Year On January 1, 2020, Playtel Inc. acquired 75 percent of the stock of San Jose Cable for $200 million in cash. At the date of acquisition, the fair value of the noncontrolling interest was $50 million, and Playtel’s shareholders’ equity accounts were as follows (in thousands): Common stock, $1 par $5,000 Additional paid-in capital 25,000 Retained deficit (1,000) Treasury stock (800) Total $28,200 Both companies have a December 31 year-end. At the date...
Question 3 An analyst is comparing two pharmaceutical companies, Abraham Inc. and Branson Corporation. Both companies...
Question 3 An analyst is comparing two pharmaceutical companies, Abraham Inc. and Branson Corporation. Both companies follow the US GAAP with a fiscal year ending on 31 December. They released their first new drugs around the same time early this year. Branson developed its drug internally, whereas Abraham acquired the research and development for its drug from another company. All else equal, Branson compared to Abraham would most likely report in the current year A. similar net cash from investing...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT