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Definitions

Stock Investment

Kepemilikan atau pembelian saham-sahamperusahaan oleh suatu perusahaan lain atau

perorangan dengan tujuan untuk memperolehpendapatan tambahan diluar pendapatan dari usaha

pokoknya.

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Level Of Influence

50%

FAIR VALUE

METHODEQUITY METHOD CONSOLIDATION

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Concept Of Cost and EquityMethod

Metode Cost

Investasi dalam

saham biasa dicatat

pada biayanya, dan

dividen dari laba

berikutnyadilaporkan sebagai

pendapatan dividen.

Metode Equity

Investasi dicatat

pada biaya

perolehan dan

disesuaikan dengan

keuntungan dankerugian dan

dividen.

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Fair Value Method

At acquisition: Pilzner buys 2,000 shares of Sud for

100,000.

Pilzner receives 4,000 in dividends from Sud.

Investment in Sud 100,000

Cash 100,000

Cash 4,000

Dividend income 4,000

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Fair Value Method, at Year-end

2-7

Reduce dividend income recognized, if needed

Adjust investment to fair value

Allowance to adjust available-for-

sale securities to fair value

21,000

Other comprehensive income 21,000

If fair value of increases to $120,000 and the Investment inSud account balance is $99,000.

Dividend income 1,000

Investment in Sud 1,000

If Pilzner determines that cumulative dividends exceed itscumulative share of income by $1,000.

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Equity Method

2-8

At acquisition: Pilzner buys 2,000 shares of Sudfor $100,000.

Pilzner receives $4,000 in dividends from Sud.

Investment in Sud 100,000Cash 100,000

Cash 4,000Investment in Sud 4,000

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Equity Method, at Year-end

Pilzner determines that its share of Sud's income is$5,000.

The ending balance in the Investment in Sud is:

$100,000 cost - $4,000 dividends + $5,000 income

= $101,000.

Cash 4,000

Investment in Sud 4,000

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2-10

Acquisition Cost > FV net assetsFV net assets > BV net assets

Payne acquires 30% of Sloan for $5,000. Sloan's identifiable netassets (assets less liabilities) are:

Fair value: A L = $18,800 - $2,800 =$16,000.

Book value: A L = E = $15,000 - $3,000 = $12,000

The $4,000 difference ($16,000 - $12,000) is due to:

$1,000 undervalued inventories sold this year,

$200 overvalued other current assets used this year,

$3,000 undervalued equipment with a life of 20 years, and

$200 overvalued notes payable due in 5 years.

$5,000 > 30%(16,000) > 30%(12,000)

$5,000 > $4,800 > $3,600

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Acquisition of Sloan Stock

At acquisition, Payne pays $2,000 cash and issues commonstock with a fair value of $3,000 and par value of $2,000.Payne also pays $50 to register the securities and $100 inconsulting fees.

Investment in Sloan 5,000

Cash 2,000

Common stock, at par 2,000

Additional paid in capital 1,000Additional paid in capital 50

Investment expense 100

Cash 150

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Cost/Book Value Assignment

Cost of acquisition 5,000

Less 30% book value = 30%(12,000) 3,600Excess of cost over book value 1,400

Assigned to: Amount Amortization

Inventories 30%(+1,000) 300 1st yearOther curr. assets 30%(-200) (60) 1st yearEquipment 30%(+3,000) 900 20 years

Note payable 30%(+200) 60 5 yearsGoodwill (to balance) 200 NoneTotal 1,400

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Dividends and Income

Payne receives $300 dividends from Sloan.

Sloan reports net income of $900.

Payne will recognize its share (30%) of Sloan'sincome, but will adjust it for amortization of thedifferences between book and fair values.

Cash 300

Investment in Sloan 300

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Amortization and Investment Income

Cost/book value

differences:Initial

amoun

t

1

st

year

amort.Unamortized

excess at year-end

Inventories 300 ( 300) 0

Other curr. Assets (60) 60 0

Equipment 900 (45) 855

Note payable 60 (12) 48

Goodwill 200 0 200

Total 1,400 ( 297) 1,103

Investment income is 30% of Sloan's net income amortization30%( 3,000) 297 = 603.

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Year-end Entry & Balance

Record the investment income

The ending balance in the investment account is:

5,000300 + 603

= 5,303.

Costdividends + investment income

Investment in Sloan 603

Income from Sloan 603