Exam 6: Accounting for Investments in Associates and Joint Ventures

Where dividends are paid/declared by an associate or joint venture and the entity prepares consolidated financial statements, the dividend revenue recognized in the ______________ accounts is eliminated on consolidation.

The entity's share of losses of an associate or joint venture may be offset against:

The purpose of the acquisition analysis relating to goodwill and fair value adjustments is to determine the real post-acquisition equity of the associate or joint venture.

All dividends paid or payable by an investee to an investor are to be recognized as revenue by the investor when the investor is also a parent company and will be preparing consolidated financial statements.

Dogma Ltd. records its investment in Fayer Co. at cost. During the year, Dogma received $20,000 in dividends from Fayer. How should Dogma record these dividends?

Which of the following statements regarding losses recorded by the associate or joint venture is FALSE?

On February 1, 2012, Jesse Co. purchased 20% of the outstanding shares of Avril Inc. at a cost of $275,000. During the next two fiscal years, Avril Inc. reported the following: Net income Dividends January 31,2013 \ 42,000 \ 20,000 January 31,2014 \ 35,000 \ 15,000 Required: (a)If Jesse records its investment in Avril at cost, what would the balance in the investment account be at January 31, 2014? What would be reported on the statement of comprehensive income with respect to this investment for 2013 and 2014? (b)If Jesse uses the equity method for reporting its investment in Avril, what would the balance in the investment account be at January 31, 2014? What would be reported on the statement of comprehensive income with respect to this investment?

How are most significant influence investments in equity securities actually recorded on the investor's books when the investor is also a parent company that will prepare consolidated financial statements?

Sales of assets from the entity to its associate or its joint venture is an example of a downstream transaction.

For a parent entity which will prepare consolidated financial statements, investments in associates or joint ventures held by the parent or its subsidiaries are accounted for in the consolidated financial statements by the cost method.

In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair values and recognize the resulting gain or loss, if any, in other comprehensive income.

Kibble Ltd. contributed some specialized equipment to receive a 45% interest in a joint venture, Lenard Inc. The equipment has a fair value of $640,000 and a carrying value of $300,000. Kibble also received $ 100,000 in cash from Lenard Inc. The other party to the joint venture, Farlinger Ltd, contributed cash of $660,000 for the 55% interest. It is deemed that the transaction lacks commercial substance. Based on the above, the gain to be recognized immediately by Kibble is:

The effect of the sale of inventory on the share of profit or loss of the associate is:

Dolan Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Dolan's financial statements?

Which of the following statements regarding the effects of intercompany transactions is FALSE?

If an entity had previously held an investment in another entity and by a further investment that investee became an associate or joint venture of the entity, at the date of the second investment, the previously held investment is revalued to fair value with any gain/loss being taken to profit or loss.

Where an entity prepares consolidated financial statements, the equity method is applied to associates or joint ventures of the _________________________ in the consolidated financial statements, and not in the accounts of the ________ itself.

Omar Corporation uses the equity method to account for its 25% investment in Limpit Corporation and receives $15,000 in dividends. How should Omar account for these dividends?