Purchase Solution

Accounting for the decline in value

Not what you're looking for?

Ask Custom Question

6. Club Co. appropriately uses the equity method to account for its investment in Chip Corp. As of the end of 2004, Chip's common stock had suffered a significant decline in market value, which is expected to be recovered over the next several months. How should Club account for the decline in value?
A) Club should switch to the fair-value method.
B) No accounting because the decline in market value is temporary.
C) Club should decrease the balance in the investment account to the current value and recognize a loss on the income statement.
D) Club should not record its share of Chip's 2004 earnings until the decline in the market value of the stock has been recovered.
E) Club should decrease the balance in the investment account to the current value and recognize an unrealized loss on the balance sheet.

Purchase this Solution
Solution Summary

This solution explains how a firm should account for value under several different circumstances, addressed fair-value method, temporary decline, Chip's 2004 earnings and stock

Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

View More Free Quizzes
Related BrainMass Solutions

  • Accounting for Depreciation

    (Management Accounting by Khan & Jain) It is necessary to account for depreciation because it helps to take care of the decline in value of asset. The company systematically records the decline in the value of asset.

  • Intermediate Financial Accounting: Variable Interest Entity

    - Does the treatment of the decline in value differ depending on whether the investment is accounted for as held-to-maturity, available-for-sale, or trading securities? Why or why not?

  • Accounting for endowment funds on a full accrual basis.

    The amount that is left in the endowment fund or the surplus in the endowment fund that has been created by accounting for the decline in the asset's value can then be used for additional investment purposes through the endowment fund, instead of having

  • Market value ratio

    There has been decline in PE ratio, Market to Book ratio showing decline in investor confidence for the company. But Book value per share has improved showing increase in accounting value of share.

  • Sub-Prime Crisis and Fair-Value Accounting

    the assumption that it was fair value accounting that was responsible for the subprime crisis.

  • Lower of cost or market

    What, if any, is the ethical issue involved? The market value of inventory for the corporation has been declined. The accounting principle for valuing the inventory is either cost or market price, whichever is lower.

  • Depriciation in Manufacturing.

    It will decline because of obsolescence, new technology in the robotics field, and erosion in value over time. Anne's assumption implies that if the robots are not used for five years there will be no decline in their value.

  • Lower-of-Cost-or-Market Rule (Method)

    By December 31, the inventory can now be replaced for $3,400, and the decline in value appears permanent.

  • Depreciation, inventory, uncollectible account receivables

    It is used to indicate a decline in market value of a long-lived asset. d. It is an accounting process which allocates long-lived asset cost to accounting periods. In comparing and contrasting FIFO vs.

View More Related Solutions