![GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD](https://www.bartleby.com/isbn_cover_images/9781260089042/9781260089042_largeCoverImage.gif)
1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To Journalize: The entries related to the investments during 2018, for Company R assuming the investment is made under fair value option method.
2.
To Journalize: The entries related to the investments during 2018, for Company R assuming the investment is made under equity method.
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 12 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
- All investments in equity instruments and contracts on those instruments must be measured at fair value. Cost may be an appropriate estimate of fair value in which of the following? 1. Insufficient more recent information is available to measure fair value. 2. There is a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range. 3. Investments in quoted equity instruments. A.1 only B.Either 1 or 2 C.None of these D. 2 onlyarrow_forwardCurrent GAAP recommends that the fair value method be used to account for compensatory stock option plans. From a conceptual point of view, this method is an improvement over the intrinsic value method. Required: Explain how the fair value method is an improvement over the intrinsic value method.arrow_forwardAll investments in equity instruments and contracts on those instruments must be measured at fair value. Cost may be an appropriate estimate of fair value in which of the following? Insufficient more recent information is available to measure fair value. There is a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range. Investments in quoted equity instruments. a. 2 only b. 1 only c. Either 1 or 2 d. None of thesearrow_forward
- Explain how electing the fair value option affects accounting for investments.arrow_forwardAll investments in equity instruments and contracts on those instruments must be measured at fair value. Cost may be an appropriate estimate of fair value in which of the following? 1. Insufficient more recent information is available to measure fair value. 2. There is a wide range of possible fair value measurements and cost represents best estimate of fair value within that range. 3. Investments in quoted equity instruments. 1 only None of these 2 only Either 1 or 2arrow_forwardQuestion 9 Which of the following is not a determinant of option value? A) The exercise price B) The price of the underlying asset C) The volatility of underlying asset D) The willingness of government to increase interest ratearrow_forward
- .X transfers a marketable equity security to Y.For each of the following transferprovisions [considered independently], consider the affected requirement for transfer offinancial assets.a.Y may not use the security as collateral for a loan. How should X account for thetransfer? Why? b.X attaches a call to the security, having an exercise price of $50. How should Xaccount for the transfer if the price is highly unlikely to rise to $50? Why?arrow_forwardMf2. -The market value option (fair value option) a. Does not apply to investments in bonds classified as available for sale b. Does not apply to investments in bonds classified as hold until maturity. expiration c. Does not apply to investments in common shares accounted for using the equity method d. The three previous alternatives are incorrect.. -Which of these changes in the method of accounting for investments in common stock requires a retroactive adjustment to the balance of the investment? a. Change from “fair value through net income” to “equity method” b. Change from “equity method” to “fair value through net income” c. Both "a" and "b" are correct. d. Neither "a" nor "b" are correctarrow_forwardwhich one is correct please confirm? Q18: "An increase in the volatility of the underlying asset, all other things held constant, will ______ the option premium." increase decrease increase or decrease Not enough information is given.arrow_forward
- When an investment in an available-for-sale debt security is transferred to trading because the company anticipates selling the security in the near future, the carrying value assigned to the investment when transferring it to the trading portfolio should be O the higher of its original cost or its fair value at the date of the transfer. O the lower of its original cost or its fair value at the date of the transfer. O its fair value at the date of the transfer. O its original cost.arrow_forwarddiscuss the inherent risks of Madoff Investment Securitiesarrow_forward“Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an equity investment. In an efficient market, one security is as good as any other.” Do you agree? Why?arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)