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Chapter 12: Q17-17Q (page 610)

Question: Explain how the investment account is affected by investee activities under the equity method.

Short Answer

Expert verified

Answer:

According to the equity method, investments are recorded in the investment at the cost of the investment, but it is always adjusted when changes are made in the investee’s account.

Step by step solution

01

Definition of investment account

An investment account is an account that is related to all types of the securities account.

02

Affect on investment account

As the investment account is adjusted with the changes made by the investee’s account, every increase or decrease takes place in the investee’s account. When the amount of the earnings increases or decreases, the investment account is also increases or decreases. Whenever investors receive their dividend, the investment account decreases. Hence, in this way, the investment account is affected by investee activities under the equity method.

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Most popular questions from this chapter

Question: Indicate whether the following items are capitalized or expensed in the current year.

  1. Purchase cost of a patent from a competitor.
  2. Research costs.
  3. Development costs (after achieving economic viability).
  4. Organizational costs.
  5. Costs incurred internally to create goodwill.

Question: Why are held-to-maturity investments applicable only to debt securities?

(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.

Cost

\(8,600,000

Carrying amount

4,300,000

Expected future net cash flows

4,000,000

Fair value

3,200,000

Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. The company does not use accumulated amortization accounts.
  2. Prepare the journal entry to record amortization expense for 2018 related to the copyrights.
  3. The fair value of the copyright at December 31, 2018, is \)3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.

Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?

In what situation will the unrealized holding gain or loss on inventory be reported in income?
See all solutions

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