On January 1, 2019, Field Company acquired 40% of North Company by purchasing 10,000 shares for $180,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $45,000 and paid dividends of $0.60 per share. Field depreciates its depreciable assets over a 12-year remaining life. Required: 1. Prepare all the journal entries of Field to record the preceding information for 2019. 2. Next Level What is the conceptual justification for the use of the equity method? {Chart of Accounts} {General Journal} The conceptual justification for the use of the equity method is: a. It recognizes that fair value is not an appropriate valuation method for the investment because the investor could influence the amount of income it recognizes. b. It recognizes that a material relationship exists between the investor and the investee. c. It closely fits the requirements of accrual accounting by reporting the investor's share in investee income in the period in which it is earned rather than as cash is received. d. All of the choices are correct.
On January 1, 2019, Field Company acquired 40% of North Company by purchasing 10,000 shares for $180,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $45,000 and paid dividends of $0.60 per share. Field depreciates its depreciable assets over a 12-year remaining life. Required: 1. Prepare all the journal entries of Field to record the preceding information for 2019. 2. Next Level What is the conceptual justification for the use of the equity method? {Chart of Accounts} {General Journal} The conceptual justification for the use of the equity method is: a. It recognizes that fair value is not an appropriate valuation method for the investment because the investor could influence the amount of income it recognizes. b. It recognizes that a material relationship exists between the investor and the investee. c. It closely fits the requirements of accrual accounting by reporting the investor's share in investee income in the period in which it is earned rather than as cash is received. d. All of the choices are correct.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter6: Receivables And Inventories
Section: Chapter Questions
Problem 6.7.6MBA
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On January 1, 2019, Field Company acquired 40% of North Company by purchasing 10,000 shares for $180,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $45,000 and paid dividends of $0.60 per share. Field depreciates its depreciable assets over a 12-year remaining life.
Required:
1. | Prepare all the |
2. | Next Level What is the conceptual justification for the use of the equity method? |
{Chart of Accounts}
{General Journal}
The conceptual justification for the use of the equity method is:
a. It recognizes that fair value is not an appropriate valuation method for the investment because the investor could influence the amount of income it recognizes.
b. It recognizes that a material relationship exists between the investor and the investee.
c. It closely fits the requirements of accrual accounting by reporting the investor's share in investee income in the period in which it is earned rather than as cash is received.
d. All of the choices are correct.
Expert Solution
Step 1
Equity method is an accounting technique of recording the financial transactions related to company’s investment in another company in which it holds a significant influence. Therefore, it can exert the significant influence over the operations and dividend policy of the other company in which it is invested.
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