Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Chapter 3, Problem 3Q
To determine
Explain the reason for why both the parent’s Net Income and
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When a parent company uses the equity method to account for an investment in a subsidiary, why do both the parent’s Net Income and Retained Earnings account balances agree with the consolidated totals?
Please concisely explain how the excess investment cost over book value is allocated.
When is the intra-entity’s profits recognized on transfers between the investor and investee?
What is the controlling interest percentage for a consolidated accounting financial statement?
If the entity is using the equity method to account for investment in subsidiary, the entry to recognize dividends received from the subsidiary will:
a.Be recognized in profit or loss
b.Increase the carrying amount of investment
c.Decrease the carrying amount of investment
d.Be recognized in other comprehensive income
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- How is non-controlling interest in the subsidiary’s net assets presented in the consolidated statement of financial position? a. Within equity but separately from the equity of the owners of the parents. b. Within equity as part of retained earnings. c. Any of these as a matter of accounting policy choice. d. As a mezzanine item between liabilities and equity.arrow_forwardHow is the investor’s share of gross profit on intra-entity sales calculated? Under the equity method, how does the deferral of gross profit affect the recognition of equity income?arrow_forwardAnswer with true or false. 1. The computation of consolidated retained earnings do not include non-controlling interest. 2. The investment in subsidiary account is recorded in the separate financial statement of parent entity. 3.arrow_forward
- The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method.arrow_forwardIf a company uses the equity method to account for an investment in another company, which of the following is true? Income is combined proportionate to ownership. Income to the investing company consists of actual dividends, interest, or capital gains. All of the investee’s income is included in the investor’s income except for income relating to intra-entity transactions. Income of the investee is included in the investor’s income but reduced by any dividends paid to the investor.arrow_forward4. What method normally is used to account for the ownership of a subsidiary on the parent’s financial records? a Cost model/methodb. Equity methodc. Consolidationd. Either cost model/method or equity methodarrow_forward
- The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method.arrow_forwardWhat is push-down accounting?a. A requirement that a subsidiary must use the same accounting principles as a parent company.b. Inventory transfers made from a parent company to a subsidiary.c. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.d. The adjustments required for consolidation when a parent has applied the equity method of accounting for internal reporting purposes.arrow_forwardHow is the amount assigned to the non-controlling interest normally determined when a consolidated balance sheet is prepared immediately after a business combination?arrow_forward
- In the separate financial statement of the parent company, which of the following statements concerning the different accounting treatment for investment in subsidiary is correct? a. Under equity method, cash or property dividend received shall be recognized as dividend income by the parent. b. Under cost method, the transaction cost directly attributable to acquisition of the investment shall be expensed as incurred. c. Under fair value model, the parent company shall recognize share in net income from the subsidiary. d. Regardless of the method, the investment in subsidiary account shall be presented as noncurrent asset in the parent’s separate statement of financial position.arrow_forwardWhen an investor uses the cost method to account for investments in subsidiary, cash dividends received by the investor from the investee should normally be recorded as: A. Ignored. B. Dividend income. C. An addition to the investor’s share of the investee’s profit. D. A deduction from the investment account E. A deduction from the investor’s share of the investee’s profit.arrow_forwardWhat are the four different methods of accounting for investment? Please concisely explain the four different methods of accounting for investment. Please show the different debits and credits to an investment account under the equity method of accounting. Please concisely explain how the excess investment cost over book value is allocated. When is the intra-entity’s profits recognized on transfers between the investor and investee? What is the controlling interest percentage for a consolidated accounting financial statement? What is the controlling interest percentage for a business combination tax return? what does a “downstream” sale of inventory refer to and when is the profit recognized? What does an “upstream” sale of inventory refer to and when is the profit recognized? What is the difference between accounting under the “partial” equity and “full equity method?arrow_forward
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