Explore BrainMass
Share

Accounting for investment in equity shares of another firm

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Describe the various methods of accounting for an investment in equity shares of another company.

Identify the sole criterion for applying the equity method of accounting and guidance in assessing whether the criterion is met.

Explain the rationale and reporting implications of the fair-value option for investments otherwise accounted for by the equity method.

© BrainMass Inc. brainmass.com October 25, 2018, 8:46 am ad1c9bdddf
https://brainmass.com/business/flow-to-equity/accounting-investment-equity-shares-another-firm-551793

Solution Preview

Describe the various methods of accounting for an investment in equity shares of another company.

US GAAP now uses the "acquisition method."

There are three "levels" in accounting for ownership of one firm in another firm. If you own very little and have no influence over the other firm, you use the cost method (which may be adjusted to market value if a trading security or available-for-sale and the shares are traded on an active market.) The cost method means that you record the purchase at historical cost (what you paid) and any dividends are reported as dividend income.

If you can influence the investment, meaning you likely own a substantial percent of the other firms, but less than 50% of it (or enough to control it), you use the equity method. This method used an adjusted historical cost. The initial purchase price is adjusted up or down for the firms' percentage share of profits and losses of the subsidiary. In addition, ...

Solution Summary

Your discussion is 529 words and a reference and gives you a T account to show the equity method activity. Implications of the fair value method are shared.

$2.19
See Also This Related BrainMass Solution

Accounting: Ratio, depreciation, Cash flow statement etc.

PLEASE SHOW A DESCRIPTION ON HOW TO DO ALL OF THESE:

Prepare a schedule of cash payments for
partnership liquidation

Prepare journal entries for bond issuance and first interest payment with amortization of discount/premium

Prepare operating section of Statement of Cash Flows using indirect method

Prepare journal entries for transactions under equity method of accounting

Prepare Income Statement including intra-period tax allocation for
irregular items

PLEASE HELP ME UNDERSTAND THESE:
Ch 10 Depreciation terminology
Ch 10 Calculate Depreciation
Ch 11 Calculate interest expense on note
Ch 11 Payroll taxes versus employee withholdings
Ch 12 Advantages/disadvantages of partnerships
Ch 12 Steps in partnership liquidation
Ch 13 Issue stock to acquire non-cash asset
Ch 13 Stock terminology
Ch 14 Journal entry for stock dividend
Ch 14 Calculate Earnings Per Share (EPS)
Ch 15 Bond terminology
Ch 15 Bond terminology
Ch 15 Bond prices versus interest rates
Ch 16 Valuation of short term investments
Ch 16 Methods of accounting for stock investments
Ch 17 Meaning of statement of Cash Flows activities
Ch 17 Classify items into activities
Ch 17 Calculate cash received from customers
Ch 18 Ratio
Ch 18 Extraordinary item

View Full Posting Details