Where an Acquisition in an Associate Results in an Excess

question 15

Multiple Choice

Where an acquisition in an associate results in an excess the excess is accounted for in the year of acquisition as follows:

• A) as a credit against the investment in associate account.
• B) as a credit against the share of associate profit account.
• C) as a debit against the share of associates retained earnings
• D) no adjustment is required due to the single line method of accounting followed under the equity method.

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Definitions:

Outstanding Receivables

The total amount of money owed to a company by its customers for goods or services delivered but not yet paid for.

Allowance for Doubtful Accounts

A reserve for accounts receivable that may not be collectable, reducing the book value of accounts receivable to a more realistic value.

Cash Loan

A financial agreement where a borrower receives a specific amount of cash from a lender and commits to repaying it over time, along with interest.

End-of-Period Adjusting Entry

Journal entries made at the end of an accounting period to update the accounts and ensure revenues and expenses are recorded in the appropriate period.