To adjust retained earnings due to change to equity

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Unformatted text preview: their book value on the date of purchase. Goodwill is not amortized. 169. 10% x $60,000 NI recognized under equity method - 10% x $30,000 dividends recognized under old approach. To adjust retained earnings due to change to equity method: 170. 171. This adjustment has no effect on net income, but it reduces OCI and comprehensive income by $10,000. 172. Blue must record an unrealized loss of $10,000 to account for the fact that the fair value of Yellow's shares has fallen from the original cost of $40,000 to $30,000. On the income statement, the $25,000 will be shown as an OTT impairment loss. OCI will be increased by the $10,000 reclassification, such that the net effect on comprehensive income is $15,000. Blue also must reclassify the 2013 unrealized loss out of OCI and remove the fair value adjustment, making the following entry that reverses the 2013 entry: 173. Blue now must record an OTT impairment. To reduce the investment from its original cost of $40,000 to $15,000, Blue makes the following entry: 174. Subsequent to recording the OTT impairment, Blue continues to treat the investment as AFS, but with an amortized cost of $15,000. Given an increase in fair value to $20,000 during 2015, Blue records a $5,000 unrealized gain, with no effect on net income but an increase of $5,000 to OCI and comprehensive income: 6. (a) The accounting approach is FV-NI, because that approach is used for "simple" debt that is held for resale. (b) Under the FV-NI approach, an increase in fair value produces an unrealized gain that is included in earnings during the period in which it occurs. 4-5 have the same answer. (a) The accounting approach is FV-OCI, because that approach is used for "simple" debt investments that are held for long-term investment or risk management. (b) Under the FV-OCI approach, an increase in fair value produces an unrealized gain that is included in OCI during the period in which it occurs, so it has no effect on earnings. 175. 1-3 all have the same answer. (a) The accounting approach is FV-NI, because that appro...
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