Class20 - Investments2 (2)

Class20 - Investments2 (2) - M351 Notes, Class 20, Equity...

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M351 Notes, Class 20, Equity Method, Impairments, Category Transfers, pp. 850-862 Today’s topics: How much influence does the investor have through their equity investment? Does this affect the accounting? Where do we see investments in the financials? A. Accounting using the equity method: (Ownership stake < 20% = Fair Value Method(3 T accts), 20-50% = Equity Method) When a company purchases shares of another company’s common stock, the investment is recorded at cost. For example, assume an investor company purchased 30% of the common stock of ABC Company (the investee) for $600,000 cash: Investment in ABC. .............................................. 600,000 Cash. ............................................................... 600,000 When the investee company earns net income , the investor company records its share by increasing the investment account and by increasing a revenue account. For example, assume the investee, ABC Company, earns $70,000 of net income. The investor company makes the following entry:
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This note was uploaded on 12/04/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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Class20 - Investments2 (2) - M351 Notes, Class 20, Equity...

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