You work in a CPA firm. Your manager walks into your cubicle and says, “One of our clients is thinking about investing in a company. He wants to know what the difference is between the equity method and cost method of accounting.”
- Prepare 4–5 slides in PowerPoint with speaker notes, and explain the following items:
- What are the GAAP requirements for reporting an investment using the equity method of accounting?
- Using the equity method of accounting, how would a company report the:
- original investment
- net income
- dividends received from the invested company
- Create a simple example, and show the journal entries for recording the:
- investment in the books
- net income
- dividends issued by the company
- Prepare 4–5 slides in PowerPoint with speaker notes, and explain the following items:
- What are the GAAP requirements for reporting an investment using the cost method of accounting?
- Using the cost method of accounting, how would a company report the:
- original investment
- net income
- dividends received from the invested company
- Create a simple example, and show the journal entries for recording the:
- investment in the books
- net income
- dividends issued by the company
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