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Session 1 — Introduction & Equity Method of Accounting

Session 1 — Introduction & Equity Method of Accounting. Course Introduction Syllabus Use of Notes—outline only Equity Method of Accounting Investment Methods Equity Method Basics Equity Method Options Fair Value Reporting Option Elimination of Unrealized Profit in Inventory.

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Session 1 — Introduction & Equity Method of Accounting

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  1. Session 1 — Introduction & Equity Method of Accounting • Course Introduction • Syllabus • Use of Notes—outline only • Equity Method of Accounting • Investment Methods • Equity Method Basics • Equity Method Options • Fair Value Reporting Option • Elimination of Unrealized Profit in Inventory Advanced Accounting-2012

  2. Investment Methods • See Table on page 6 • Less than 20% • Lack of influence • Fair value or cost • Between 20% and 50% • Significant influence • Fair value or equity method • More than 50% • Control • Consolidation Advanced Accounting-2012

  3. Equity Method Basics • Record at cost • Increase investment for share of income or loss • Decrease investment for dividends received • Consider the investment account a mirror of the investee’s equity account Advanced Accounting-2012

  4. Equity Method Options • Changes to the equity method • Initial entry as prior period adjustment to R/E • Unrealized mark-to-market account eliminated as well • Investee income and loss from sources other than continuing operations • Individual reporting in unique categories, but not as a “separately reported item” • Investee losses • Normal treatment until zero balance is reached, then OBS Advanced Accounting-2012

  5. Excess of Investment over Book Value • Important concept in terms of future consolidation accounting • Value excess and identify accounts • Amortize to equity income in investee and the investment account Advanced Accounting-2012

  6. Fair Value Reporting Option • ASC Topic 825 • Irrevocable election when equity method is first an option • Applies to investments under 50% • Direct income statement impact • Companies lose “available for sale” treatment in OCI Advanced Accounting-2012

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