Asked by Elaine Vizcarra on Jul 04, 2024
Verified
Yules Co. acquired Noel Co. and applied the acquisition method. Yules decided to use the partial equity method to account for the investment. The current balance in the investment account is $416,000. Describe in words how this balance was derived.
Partial Equity Method
An accounting approach used when an investing entity owns a significant but not controlling stake in another company, recognizing income based on the proportionate share of the investee's earnings.
Investment Account
A financial account held at a financial institution that holds securities, such as stocks or bonds, for investment purposes.
- Comprehend the application of the equity method in accounting for investments and its effect on consolidated financial statements.
- Elucidate the consequences of employing distinct internal accounting techniques (initial value, partial equity, and equity methods) on the investment account of the parent entity and the consolidated financial statements.
Verified Answer
CR
cassidy riveraJul 08, 2024
Final Answer :
The initial balance in the investment account would be the acquisition value implied by the fair value of consideration transferred. This would not include consideration paid for costs to effect the combination. After the acquisition, the balance in the account is increased by the parent's accrual of the subsidiary's income and decreased by the dividends paid by the subsidiary.
Learning Objectives
- Comprehend the application of the equity method in accounting for investments and its effect on consolidated financial statements.
- Elucidate the consequences of employing distinct internal accounting techniques (initial value, partial equity, and equity methods) on the investment account of the parent entity and the consolidated financial statements.