Answered Essay: In the case of an equity method investment for which there is a change in fair value: a. Unrealized gains are reported in the income statement, but unrea

13. In the case of an equity method investment for which there is a change in fair value: a. Unrealized gains are reported in the income statement, but unrealized losses are not reported b. Unrealized gains and losses are reported on the balance sheet only Unrealized gains and losses are recognized in other comprehensive income d. c. No gains are recognized in income until the investment is sold If an investor sells merchandise to an investee and the investee resells all of the items to o parties in the same period, what equity method entry is required? a. The entire gross profit is deferred with a debit to b. No equity method entry is required, since the gross profit is realized c. The entire gross profit is deferred with a credit to Equi d. The investors percentage of the gross profit is deferred with a debit to Equity Income. 14. Equity Income and credit to Equity Investment. ty Income and Debit to Equity Investment 15. When a noncontrolling, Equity-Metho losses: d Investment balance is reduced to zero as investee incurs a. b. c. d. The investment remains at zero until the investment is sold The investment remains at zero until profits have eliminated the unrealized loss The investor must change to the fair value method Additional investment losses will result in a credit balance in Equity Investment 16. When an investor can no longer exert significant influence over the investee, it must change to the fair value method if the investment has a readily determinable fair value What is the required accounting treatment on investors books? a. A prior period adjustment is recorded to bring retained earnings to what it would have been if the new method had been used in the past. b. The book value on the date of change becomes the cost of the investment c. The investment will be adjusted to its fair value d. Both b and c are required

In the case of an equity method investment for which there is a change in fair value: a. Unrealized gains are reported in the income statement, but unrealized losses are not reported b. Unrealized gamins and losses are reported on the balance sheet only c. Unrealized gains and losses are recognized in other comprehensive income d. No gains are recognized in income until the investment is sold If an investor sells merchandise to an investee and the investee resells all of the items to outside parties in the same period, what equity method entry is required? a. The entire gross profit is deferred with a debit to Equity Income and credit to Equity Investment b. No equity method entry is required, since the gross profit is realized. c. The entire gross profit is deferred with a credit to Equity Income and Debit to Equity Investment d. The investor’s percentage of the gross profit is deferred with a debit to Equity Income. When a noncontrolling, Equity-Method Investment balance is reduced to zero as investee incurs losses: a. The investment remains at zero until the investment is sold b. The investment remains at zero until profits have eliminated the unrealized loss c. The investor must change to the fair value method d. Additional investment losses will result in a credit balance in Equity Investment When an investor can no longer exert significant influence over the investee, it must change to the fair value method if the investment has a readily determinable fair value. What is the required accounting treatment on investor’s books? a. A prior period adjustment is recorded to bring retained earnings to what it would have been it the new method had been used in the past. b. The book value on the date of change becomes the “cost’ of the investment. c. The investment will be adjusted to its fair value. d. Both b and c are required.

Expert Answer

 

13. d. No gains are recognized in income until the investment is sold

14. b. No equity method entry is required since the gross profit is realized

15. b. The investment remains at zero until profits have eliminated the unrealized loss

16. d. Both b and c are required

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