Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Matching Accounting Methods and Investments

Consider the following accounting methods for long-term investments:

a. Amortized cost method

b. Fair value method

c. Equity method

d. Consolidation of parent and sub


Match one or more of these methods with each of the investments described below:

1. Mueller Inc. owns 75% of Johnston Corporation’s outstanding common stock.

2. Anderson Inc. owns 25% of Peterson Corporation’s outstanding common stock.

3. Wixon Corporation owns 12% of the outstanding common stock of Gilman Inc., which is classified as available-for-sale,

4. Kohler Corporation holds a $40,000 long-term note receivable from Bennett Inc., a major customer. Kohler expects to sell the note within the next 2 or 3 years.

5. Janis Products Inc. holds $200,000 in Gibson Manufacturing bonds. Janis plans to hold these until they mature.

To determine


There are three methods i.e. amortized cost, equity and fair value method that is used to record investment for less than 50% ownership of the common stock outstanding whereas more than 50% ownership is regarded as consolidation of parent and subsidiary company.

To match:

The terms with their definition or most related example.


a. Amortized Cost:

Investment in debt security (hold-until maturity) is recorded using Amortized Cost Method.

b. Fair Value Method:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.


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