The 2016 income statement of Salem Company follows:
Required:
a. What accounting method does Salem use to account for its investments in Portland Co.?
b. According to GAAP, when must Salem account for its investments in affiliates by consolidating their financial statements?
c. How does Salem recognize income received from Portland Co.? What amount did Salem report in 2016? What else is included in this number in 2016?
d. What financial reporting benefits arise from Salem keeping its investment in affiliates at less than 50 percent ownership?
e. How do the dividends received from the equity investee affect the equity-method investment on Salem's balance sheet and on Salem's income statement?
f. Describe the effects on Salem's statement of cash flow from the equity method investment. Don't forget about the cash received from the sale of Portland Co.

Question

The 2016 income statement of Salem Company follows:
  Required: 
a. What accounting method does Salem use to account for its investments in Portland Co.?
b. According to GAAP, when must Salem account for its investments in affiliates by consolidating their financial statements?
c. How does Salem recognize income received from Portland Co.? What amount did Salem report in 2016? What else is included in this number in 2016?
d. What financial reporting benefits arise from Salem keeping its investment in affiliates at less than 50 percent ownership?
e. How do the dividends received from the equity investee affect the equity-method investment on Salem's balance sheet and on Salem's income statement?
f. Describe the effects on Salem's statement of cash flow from the equity method investment. Don't forget about the cash received from the sale of Portland Co.

Quizplus · Accepted Answer

The Answer of The 2016 income statement of Salem Company follows:
  Required: 
a. What accounting method does Salem use to account for its investments in Portland Co.?
b. According to GAAP, when must Salem account for its investments in affiliates by consolidating their financial statements?
c. How does Salem recognize income received from Portland Co.? What amount did Salem report in 2016? What else is included in this number in 2016?
d. What financial reporting benefits arise from Salem keeping its investment in affiliates at less than 50 percent ownership?
e. How do the dividends received from the equity investee affect the equity-method investment on Salem's balance sheet and on Salem's income statement?
f. Describe the effects on Salem's statement of cash flow from the equity method investment. Don't forget about the cash received from the sale of Portland Co.

The 2016 Income Statement of Salem Company Follows