Answered: Explain the adjustments made in the…

Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 5DQ

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Question

Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.

Expert Solution

Step 1

When a company follows equity method when it has significant influence over such company.The investment account has to be adjusted with income and losses from such investment such as dividend etc.

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