Equity Method-Significant influence Investments

Question 1

Investments requiring Equity Method

Answer 1

• Voting equity securities
• Has representation on board of directors
• Participates in investee policy makings
• Has material intercompany transaction
• Is technologically interdependent w/ investee
• No other single investor has material voting ownership of investee

Question 2

Initial Investment

Answer 2

• Reported at cost (purchase price/brokerage commissions, transfer fee
• Investor must determine BV of assets/liabilities of investee @ date of investment, determine FV of A/L of investee @ date of investment, allocate any diff b/w cost of investment & BV of investee to FV of identifiable A/L then any excess balance to Goodwill (or gain if cost< FV

Question 3

Decomposing Purchase Price

Answer 3

• arms length tranaction
• All direct costs related to purchase are expensed bc not attribute of acquiree. (ex. finder’s fees, audit fees, legal fees)