The Equity Method Records Dividends

The first option records the acquisition of Drug X and OuchX into an intangible account -- “ownership”. In the case of transfer ownership of the IPR&D of Drug X from Brust-a-Knee to Pharmers, Brust-a-Knee receives $2 million cash and incurred $2 million loss. The disadvantage of treating the $2 million loss into the expense account of Drug X is there may be future economic benefits for Brust-a-Knee to sell Drug X because the estimated revenue is $5.5

3. Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement?

Solution – QUESTION 2 (written by Asher Curtis) - 10 Marks Suggestions only: 1. (3 marks for identifying the three dimensions) Applications of cost and equity differ on three dimensions. First, the treatment of dividends, is written against the investment account (Equity) or recognised as revenue (Cost). Second, the treatment of profits reported by the associated entity and the ammortisation of goodwill (the difference in the cost paid and the fair value of the net assets acquired) are not recognised when applying the cost method. The only case where net profit is not affected by choice of the method is where there is no goodwill (cost = fair value of net assets acquired) and the firm pays out all of its profit as dividends. Any of the following alternatives provide examples (2 marks for any of the following): a. The case for a profitable company that pays less than 100% profits out as dividends: The net value of the investment increases under the equity method, which will be more than cost unless the investment is revalued. b. The case for a loss company that pays no dividends: Unless the investment is subject to a recoverable amount test, application of the equity method

3. Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement?

On October 31, the stockholders' equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two

b. Should Deloitte have evaluated the sales occurring after the balance sheet date of May 31,1984?

S29.Equity securities acquired by a corporation which are accounted for by recognizing unrealizedholding gains or losses as other comprehensive income and as a separate component ofstockholders' equity are

(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the

The three main events in the life of an asset are the acquisition, useful life, and disposal or retirement. At the end of an asset’s life, gain or loss of its disposal is recorded. A gain or loss will take place at the disposal of any assets and should be logged as journal entry along with any related incidental cost. The unrealized gains and losses are noticed according to its earnings. All changes whether upward or downward that involves investment shares are shown as income or losses with a change in market value that requires an adjustment to its carry value.

When the executives decide that earnings should be retained, they have to account for them on the balance sheet under shareholder equity. This allows investors to see how much money has been put into the business over the years. Once you learn to read the income statement, you can use the retained earnings figure to make a decision on how wisely management is deploying and investing the shareholders ' money. If you notice a company is plowing all of its earnings back into itself and isn 't experiencing exceptionally high growth, you can be sure that the stock holders would be better served if the board of directors declared a dividend.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2012). Accounting Principles (10th ed.). Hoboken, NJ: John Wiley & sons.

Using CAPM to provide the calculation for the equity, this presents both positive and negative effects.

The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

Now I will discuss the pros and cons of the alternative decision, which is a combination of the debt and equity methods. A positive of this method is that the instrument is split between debt and equity. The company could just split it up 50/50 between the two methods. Also if they had too much debt, they could account for the instrument with 20% as debt and 80% as equity. This would make it look as if they do not have too much debt or too much equity. This method would be an advantage, if the company were looking to get more financing in the future.

14. Aimes opened a new business by investing the following assets: cash, $4,000; land, $20,000; building, $80,000. Also, the business will assume responsibility for a note payable of $32,000. Aimes signed the note as part of his payment for the land and building. Which journal entry should be used on the books of the new business to record the investment by Aimes?