Problem 1.

Large Company owns 30% of Small Company and applied the equity method. Small Company has a loss of $50,000 in 2022, which is recorded as follows:

Answer:?

However, there are certain instances that require special handling. For example, losses in the fair value of equity investment are typically ignored, but FASB ASC 323 requires that permanent losses in the value of investment be recorded as an impairment. Suppose the carrying value of an equity investment is $1,300,000 and it is determined that the fair value of the equity has permanently declined to $1,000,000. The reduction in fair value is reported as follows:

Answer:?

Problem 2.

Large Company owns 40% of the voting stock of Small Company and applies the equity method to its investment. In 2022, Small Company reports $400,000 of net income and $100,000 of other comprehensive income (OCI). Large Company needs to report its share of each item separately:

Answer:?

Problem 3:

Big Company owns 40% of the 100,000 outstanding shares of Small Company and applies the equity method. The investment was originally acquired for $150,000 but the balance in the Investment account as of 1/1/14 is $200,000. On 4/1/14, Big Company sells 10,000 shares (one-fourth of its investment) for $75,000. Small Company’s first quarter net income is $20,000 and cash dividends are $5,000. The entry to record the sale of the 10,000 shares is as follows:

Answer:

Answer rating: 100% (QA)

1 Large Company will record a loss of 15000 in 2022 calculated ... View the full answer