When applying the equity method, how is the excess of cost over book value accounted for? A) The excess is allocated to the difference between fair value and book value multiplied by the percent of ownership of current assets. B) The excess is allocated to the difference

When applying the equity method, how is the excess of cost over book value accounted for? A) The excess is allocated to the difference between fair value and book value multiplied by the percent of ownership of current assets. B) The excess is allocated to the difference

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7DQ

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Question

When applying the equity method, how is the excess of cost over book value accounted for?

A) The excess is allocated to the difference between fair value and book value multiplied by the percent of ownership of current assets.
B) The excess is allocated to the difference between fair value and book value multiplied by the percent ownership of total assets.
C) The excess is allocated to the difference between fair value and book value multiplied by the percent ownership of net assets.
D) The excess is allocated to goodwill.
E) The excess is ignored.

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