When a Company Applies the Partial Equity Method in Accounting

question 84

Multiple Choice

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?
A.Retained earnings
Investment in subsidiary

B. Investment in subsidiary
Retained earnings

C. Investment in subsidiary
Equity in subsidiary's income

D. Investment in subsidiary
Additional paid-in capital

E. Retained earnings
Additional paid-in capital

• A)A above
• B)B above
• C)C above
• D)D above
• E)E above

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Definitions:

Lease

An agreed contract in which the lessor permits the lessee to utilize an asset for a set duration in return for regular payments.

Tax-Oriented Lease

A financial lease in which the lessor is the owner for tax purposes. Also called a true lease or a tax lease.

Lessor

The party who rents or leases a property or asset to another party, known as the lessee.

Financial Lease

A lease agreement where the lessee assumes most of the risks and rewards of ownership, often with an option to purchase the asset at the end of the lease term.