When an investor has significant influence over an investee, the investor must use the equity method of accounting to recognise the investee in its consolidated financial statements. Select one: True False
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When an investor has significant influence over an investee, the investor must use the equity method of accounting to recognise the investee in its consolidated financial statements.
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- State whether the following statements are true or false and justify your answer in each case: a) The investor's relative exposure to the risks and rewards of the investee is known as the investor's 'extent of equity ownership' in the investee. b) The investor's 'extent of equity ownership' in the investee determines whether the investee is equity accounted. consolidated or simply measured as an investment in the investor's consolidated financial statements. c) The investor's degree of influence over an investee increases as the investment changes from a simple investment to a subsidiary. finally reaching the strongest degree of influence when the subsidiary becomes an associate. d) An investment over which the investor has significant influence is called an associate. e) An investee that is jointly controlled by the investor is called a subsidiary. f) The only instance where the investor may equity account for its investee is when such an investee is classified as an associate. g)…Answer the following questions: Define and discuss the term "equity" What financial statement element, other than equity, is typically affected by owner investments and distributions?Nowicuye Check u Which of the following describes the purpose of the statement of shareholders' equity? Multiple Choice Disclose investments by owners, distributions to owners, net income, and other comprehensive income Disclose the impact of investments by owners, distributions to owners, net income, and other
- Which of the following statements is TRUE regarding the equity method? A. The equity method is used for reporting gains or losses for non-strategic investments. B. The investor's share of the associate's dividends declared is reported as revenue. C. The investor's investment in the associate changes in direct relation to the changes taking place in the associate's equity accounts. D. The equity method reports unrealized gains and losses on revaluations to fair value in net income.Choose the correct.When an investor uses the equity method to account for investments in common stock, the investor’s share of cash dividends from the investee should be recorded as: a. A deduction from the investor’s share of the investee’s profits.b. Dividend income.c. A deduction from the stockholders’ equity account, Dividends to Stockholders.d. A deduction from the investment account(AICPA adapted)An investor prepares a single set of financial statements which encompasses the financial results for both it and its investee because: a. The investor has a controlling interest in its investee. b. The investor has a passive interest in its investee. c. The investor has an influential interest in its investee. d. The investor has an active interest in its its investee.
- Choose the correct. Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?a. The investee’s reported income adjusted for excess cost over book value amortizations.b. Changes in the fair value of the investor’s ownership shares of the investee.c. Intra-entity profits from upstream sales.d. Other comprehensive income reported by the investee.When the equity method is applied, what disclosures should be made in the investor's financial statements?When two or more investors exercise joint control over an investee, the investors must use the equity method of accounting to recognise the investee in their consolidated financial statements. Select one: True False
- When an investor uses the equity method to account for investments in common stock, cash dividend received by the investor from the investee should be recorded as _____. A. A deduction from the investment account. B. A deduction from the stockholders' equity account, dividends to stockholders. C. Dividend income. D. A deduction from the investor's share of the investor's profits.n reference to intercompany transactions between an investor and an investee, when the investor can significantly influence the investee, which of the following statements is correct, assuming that the investor is using the equity method? Question 9Answer a. As long as the investor recognizes the effects of the transaction in its financial statements, it is notrequired to provide any additional disclosures. b. In reporting its share of earnings and losses of an investee, the investor must eliminate the effect of profits and losses on the intercompany transactions until they are realized. c. None of the others are correct. d. There is the presumption of arms-length bargaining between the related parties.Explain how the investment account is affected byinvestee activities under the equity method.
