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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
Required:
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.
Introduction:
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.
c...
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