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Application of the Equity Method

Posted by:Prof. Lexx Posted on:May 21,2016

Forth Company owned 85,000 of Brown Company’s 100,000 shares of common stock until January 1, 20X2, at which time it sold 70,000 of the shares to a group of seven investors, each of whom purchased 10,000 shares. On December 3, 20X2, Forth received a dividend of $9,000 from Brown. Forth continues to purchase a substantial portion of Brown’s output under a contract that runs until the end of 20X9. Because of this arrangement, Forth is permitted to place two of its employees on Brown’s board of directors.

Required

Forth Company’s controller is not sure whether the company should use the cost or equity method in accounting for its investment in Brown Company. The controller asked you to review the relevant accounting literature and prepare a memo containing your recommendations. Support your recommendations with citations and quotations from the Accounting Standards Codification.


Prof. Lexx

Overview I have a Bachelor of Arts, majoring in English and minoring in History. I have worked in various fields ranging from academic research to freelance translating to editing to customer support and data entry. These include editing my old university's newspaper as well as co-leading their creative writing team; serving as a junior member in the history department's research network; publishing music and film reviews for several different magazines and webzines; and translating papers and books for numerous researchers in various languages, including Russian, Spanish, and Romanian. I am also a skilled typist, with a rate of at least 70 words per minute, and have myself digitized dozens of books and essays for both private and commercial use. I have a very strong work ethic, and make sure to prioritize the task I am given so that it is completed as quickly as possible. I am organized and disciplined, ensuring a job done professionally and efficiently.

    I have a background of 8 years in writing profession and currently pursuing also as an editor and proofreader. I have a knack for writing and thus, it was obvious to enhance my skills and serve others. Currently joined ‘Member of Association of Professional Writers and Editors’ a

    Pro Alex
    USA