Learning Objective $12-07$ Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.

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When the fair value of identifiable net assets acquired exceeds the book value of the underlying net assets acquired in the purchase of an equity investment, both the investment account and investment revenue are adjusted for differences between net income reported and what that amount would have been if consolidation procedures had been followed.

Adjustments Made in the Equity Method

Knowledge Check $01$

Which of the following statements about the adjustments made in the equity method are true?

Note: Select all that apply.

Check All That Apply

When the investor$$s expenditure to acquire an equity$-$method investment is less than the book value of the underlying net assets acquired, additional adjustments to both the investment account and investment revenue might be needed.

When the investor$$s expenditure to acquire an equity$-$method investment is less than the book value of the underlying net assets acquired, additional adjustments to both the investment account and investment revenue might be needed.

$$Amortizing the differential$$ refers to adjustment to both the investment account and investment revenue for differences between net income reported by the investee and what that amount would have been if consolidation procedures had been followed.

$$Amortizing the differential$$ refers to adjustment to both the investment account and investment revenue for differences between net income reported by the investee and what that amount would have been if consolidation procedures had been followed.

The adjustments required are limited to depreciable and amortizable assets.

The adjustments required are limited to depreciable and amortizable assets.

No adjustments are required for land or goodwill.