Question #48 - Reading 8 Intercorporate Investments

Reading: Reading 8 Intercorporate Investments

PDF File: Reading 8 Intercorporate Investments.pdf

Page: 21

Status: Incorrect

Correct Answer: A

Your Answer: C

Shared Context

- If Anderson Company accounts for the Birschbach Company shares as classified as fair value through OCI, the carrying amount of these shares on Anderson's balance sheet at the end of 2012 is: A) $3.5 million. B) $2.5 million. C) $2.6 million.

Question

If Anderson Company accounts for the Birschbach Company shares using the equity method, the carrying amount of these shares on Anderson's balance sheet at the end of 2012 is closest to:

Answer Choices:

A. $2.8 million

B. $2.6 million

C. $3.5 million

Explanation

Under the equity method, market value is ignored. The carrying value of the shares is: the original investment + proportional share of earnings − dividend received. [(100,000)($25)] + [(100,000)($2.50 − 1.50)] = $2,600,000

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