d. Fair value 3.-- Normally, if one company has made an investment in another co
ID: 2597737 • Letter: D
Question
d. Fair value 3.-- Normally, if one company has made an investment in another company, and the investor has significant influence, but not control, of the investee, the investor should use which method of accounting? a. Consolidation b. Equity c. Fair value d. Cost 4. Assume that Company A has invested $30 million in Company B, and is accounting for this investment using the equity method. Company A believes that its share of the net book value of Company B's assets equals $28 million, and that the remaining $2 million book value. Which of the following is a correct statement regarding how Company A will a. Each year, over the life of the patents, Company A will debit "equity in investee of the purchase price relates to the excess of the fair value of certain patents over their treat this $2 million related to patents? income" and credit its investment in Company B for amortization of the $2 million. If the patents are impaired, Company A will record an impairment loss. Company A will make no entry related to the $2 million in the future, unless the value of the patents becomes impaired. b. Company A will make no entries at all in the future related to the $2 million c. whether or not the patents are impaired.Explanation / Answer
3. B) Equity
Explanation- An investment in an associate is accounted for using the equity method. The equity method involves recognising the investment initially at cost, then adjusting for any change in the investor’s share of net assets of the associate since it acquired it.
4. B. Company A will make no entry related to the $2 million in the future, unless the value of the patents becomes impaired.
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