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【正文】 the voting stock of Tiny Company and accounts for this investment using the equity method. In 2022, Tiny reports ine of $200,000, resulting from $250,000 in ine from continuing operations and a $50,000 extraordinary loss. Large Company increases the value of its investment by $80,000, based on 40% of the $200,000 figure. ?Large’s Equity Method entry at yearend is: 135 Reporting Investee Losses A permanent decline in the investee’s fair market value is recorded as an impairment loss and the investment account is reduced to the fair value. A temporary decline is ignored!!! 136 Reporting Investee Losses (Continued…) Investment Reduced to Zero ?When the accumulated losses incurred by the investee, and dividends paid by the investee, reduce the investment account to $0, NO ADDITIONAL LOSSES are accrued (unless a further mitment has been made) ?The balance remains at $0, until subsequent profits eliminate all UNREALIZED losses. 137 Reporting Sale of Equity Investment The equity method continues to be applied up to the date of the transaction. At the transaction date, the Investment account balance is reduced by the percentage of shares sold. If significant influence is lost, NO RETROACTIVE ADJUSTMENT is recorded, but the equity method is no longer applied.？？？ If part of an investment is sold during the period: LO 5 138 Let your Yes be Yes, No, No. Reporting the Sale of an Equity Investment (Continued…) P17 ? Top Company owns 40% of the 100,000 outstanding shares of Bottom Co., and properly accounts for it using the equity method. ? The 40,000 shares were acquired several years ago for $200,000, and under the equity method, the asset balance has increased to $320,000 as of January 1, 2022. ? On July 1, 2022, Top elects to sell 10,000 of these shares (1/4 of its investment) for $110,000 in cash, thereby reducing ownership in Bottom from 40% to 30%. Bottom Company reports ine of $70,000 during the first six months of 2022 and distributes cash dividends of $30,000.（ 26000,84000？？？？） G E N E R A L J O U R N A L Pa g e D a t e D e s c r i pt i on D e bi t C r e di tC a s h 1 1 0 , 0 0 0 G a i n o n Sa l e o f I n v e s tm e n t 2 6 , 0 0 0 I n v e s tm e n t i n B o tt o m , C o . 8 4 , 0 0 0 139 INVESTOR INVESTEE INVESTOR INVESTEE Downstream Sale Upstream Sale Unrealized Profits in Inventory Sometimes affiliated panies sell or buy inventory from each other in intraentity transactions that necessitate special accounting procedures.？？？ 140 LO 6 140 Let your Yes be Yes, No, No. Fair Value Reporting Option In 2022, FASB introduced a fairvalue option An entity may irrevocably elect fair value as the initial and subsequent measurement for certain financial assets and financial liabilities including investments accounted for under the equity method. Under the fairvalue option, changes in the fair value of the elected financial items are included in earnings. LO 7 141 Let your Yes be Yes, No, No. Fair Value Option Investment that can otherwise be accounted for under the equity method Investment in nonmarketable equity securities After 2022, under the Fairvalue Option, changes in the fair value of these assets are reported in earnings. 142 Let your Yes be Yes, No, No.
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