F4 M2 Equity Method
What are some examples of an investor having significant influence over an investee?
20-50% ownership, board representation, material transactions, policy participation, interchange of personelle, technology dependency
Under the Equity method how is the investment income effected by dividends issues by the investee?
Dividends received reduce the investment account/ cost per share.
How does a stock dividend effect a company using the equity method?
It increases the amount of shares used and decreases the cost per share.
Under the Equity method how is the excess fair value of an investment treated?
It is treated as a reduction of the investment account and the income from the investee.
How does liquidating dividends effect the investment accounts
It reduces both the investment and income received.
How does the undervalued assets effect the investment account and our income from investee? What are the JE?
The undervalued assets are amortized and reduce both the investment and income . The JE is Dr. Equity investment income(I/S) xxx CR. Investment in investee xxx
Under the Equity method how would you calculate goodwill?
Total fair value of the assets of the company(not including any undervalued assets) multiply it by the percentage you own= Total FV of the assets of the company compare that to how much you paid and the difference is Goodwill.
Under the Equity method how are dividends from common stock and preferred stock treated in the investors income calculation?
Under the equity method the common stock dividends are a reduction of the investment account however the PS gives the investor no sig infl so they are considered income.
