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Alternative Investment Methods

Content type
User Generated
Subject
Accounting
School
DeVry University
Type
Homework
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5)
a) Changing between the Equity method, Initial Value method, and Partial Equity
method in accounting for a company’s investment, the final consolidation balances will always
be the same regardless of the method. The only differences seen between varying investment
accounting methods are the parent’s opening trial balance numbers and the consolidation
entries. Furthermore, the only accounts that change between these accounting methods are
the investment income from the subsidiary, the investment account (asset), and the opening
retained earnings balance of the parent (which consequentially also changes the ending
balance as well).
Table shows the changes in the accounts between investment accounting methods.
Investment income
Investment
BOY, Retained Earnings
Equity
Net income of the
sub - any
amortization /
impairment losses
Acquisition cost of
investment + sub’s
income (since acq.)
sub’s dividends – any
amortization /
impairment losses
Parent’s opening R.E.
total income and
dividends from sub.
Initial Value
Investment income
will be only the
current year
dividends received
from the sub, and
account will be called
“Dividend Revenue”
Acquisition cost of
the investment
(amount paid)
Parent’s opening R.E.
before any effects
from sub.
Partial Equity
Net income of the
sub
Acquisition cost of
the investment +
sub’s income – sub’s
dividends
Parents’ opening R.E.
+ PY income from
sub.
The second difference between accounting methods as described above are the
consolidation entries to combine the parent and subsidiary TBs to the final consolidation
figures. Under the equity method four entries must be made. Firstly, to close out any dividends
declared from the subsidiary to the investment account. The second entry is to record the PY
ending balances of all the items in the amortization schedule (items acquired for greater or less
than their fair value). These items are closed out to the investment account as well. The third
entry is to record any amortization / impairment losses that occurred during the year (2018).
The final adjusting entry is to close out the sub’s RE, sub’s common shares and the parent’s
income from investment to the investment account.
Under the initial value method, the only difference in the entries done are the first one
and an additional entry to adjust the opening R.E. balance. The dividends declared by the sub
are put to the dividend income account, instead of the investment account. A retained earnings
entry must be done to agree the opening retained earnings balance to that of the equity

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5) a) Changing between the Equity method, Initial Value method, and Partial Equity method in accounting for a company’s investment, the final consolidation balances will always be the same regardless of the method. The only differences seen between varying investment accounting methods are the parent’s opening trial balance numbers and the consolidation entries. Furthermore, the only accounts that change between these accounting methods are the investment income from the subsidiary, the investment account (asset), and the opening retained earnings balance of the parent (which consequential ...
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