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9 Cards in this Set
- Front
- Back
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When to use cost method
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<20% ownership of investee's voting stock/ does not exercise significant influence
This is for external reporing only and do not consolidate (could also be called the fair value method or the available-for-sale method) The original investment under the cost method is accounted for in the same manner as marketable equity securities, generally as an available-for-sale investment |
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Cost Method - Balance Sheet
(investment in investee) |
carry investment at original cost measured by FV of the consideration given including legal fees, the investment acct stays the same from the date of acquisition.
Excetions: shares of stock in sub are purchased or sold accum dividend in excess of accum earnings - resulting in a return of capital basis is adj to FV as required for marketable securities The sub incurs losses that substantially reduce net worth from the date of acquisition |
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cost method JE to record acquisition (BS)
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DR Investment in investee
CR Cash |
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cost method JE to record unrealized loss and adj to FV at YE (BS)
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DR Unrealized holding losses
CR Investment in Investee |
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cost method JE to record unrealized gain and adjust FV at YE
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DR Investment in investee
CR Unrealized holding gains |
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cost method JE to record return of capital distribution or liquidating dividend - dividend in excess of investor's share of retined earnings
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DR Cash
CR Investment in investee |
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Cost Method - Income Statement
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record cash dividends from the investee's retained earnings. Do NOT recognize stock dividends
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cost method JE to record dividends
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DR Cash
CR Dividend income |
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cost method JE to record distribution that exceeds investor's share of the investee's RE (not income)
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DR Cash
CR Investment in investee |
