BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Investee losses.
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Investee dividend payments.
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An increase in the investee’s share price from last period.
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All of the above would affect the Investment in Swan Co. account.
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Detailed explanation-1: -Fair value accounting uses current market values as the basis for recognizing certain assets and liabilities. Fair value is the estimated price at which an asset can be sold or a liability settled in an orderly transaction to a third party under current market conditions.
Detailed explanation-2: -Which of the following investor accounts are affected in recording an increase in the fair value of an investee’s stock? The journal entry made by a parent company to record its shares of the income from an investee company is referred to as the Equity accrual.
Detailed explanation-3: -When the equity method is used, the investment account is increased by the share of the investor to the net income of the investee. The share on net loss, as mentioned in choice C, would decrease the investment account.
Detailed explanation-4: -Which of the following procedures are followed in applying the fair-value method of accounting for an investment in another firm’s equity securities?-the investor continues to apply the equity method if the investor continues to have the ability to exercise significant influence over the investee.