Respond to your Discussion topic after you have completed your Reading and the Learning Activity.
Topic 2: When working in an accounting office, you may be called on to record the purchase of a subsidiary for a particular firm. This will require many numbers to be computed and journal entries to be recorded. The following Discussion will help you work this problem out.
Address all of the Checklist items below in your Discussion.
Checklist:
- Briefly explain the difference between the cost method, the equity method, and the fair value method. Explain the advantages and disadvantages of each method.
- Once this has been completed, select one of the methods (either the cost method, the equity method, or the fair value) and complete the following:
- Prepare three tables and determine the amounts reported by A Company as income from its investment in B Company for each year and the balance in A Company’s investment in B Company at the end of each year using each of the three methods.
- Once, this has been completed post your answer as a main post in the Discussion area.
- Then reply to your classmates to assess their computations of each of the methods. If at all possible, make your replies to individuals evaluating other methods than the one you selected.
- Respond per your Syllabus guidelines.
Company A purchased 20 percent of the outstanding shares of B Company for $70,000 on January 1, 20X6. The following results are reported for Company B:
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