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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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A2-10 JFK Inc. buys 30% of the shares outstanding for KLN Company. What account will JFK debit?

a. Investments-Equity Method

b. Investments

c. Trading Securities

d. Available-for-Sale Securities

To determine

Concept introduction:

Equity Method:

The Equity method is applied for the accounting for investment in equity shares of a company where the investment has the significant influence over the company. Under this method the share of income earned by the company is recorded by the investor in the investment account and the investment account is decreased by any divided received.

To choose:

The correct account to be debited.

Explanation

Explanation for correct answer:

Equity method is used when investment is made 20% to 50% in the shares of the company. Hence correct option is a.

Explanation for incorrect answers:

b. Equity method is used when investment is made 20% to 50% in the shares of the company...

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