[GONNAFLYNOW]

Can anyone explain why Peace uses the equity method instead of the acquisition method, being that Peace owns 75% or Surge????

On January 2 of the current year, Peace Co. paid $310,000 to purchase 75% of the voting shares of Surge. Co. Peace reported retained earnings of $80,000 and Surge reported contributed capital of $300,000 and retained earnings of $100,000. The purchase diff was attributed to depr. assets with a remaining useful life of 10 years. Peace used teh EQUITY method in accounting for its investment in Surge. Surge reported NI of $20,000 and declared and paid dividends of $8,000 during the current year. Peace reported income, exclusive of its income from Surge, of $30,000 ad paid dividends of $15,000 during the current year. What amount will Peace report as dividends declared and paid in its current year;s consolidated statement of retained earnings?

[Anonymous]

It is implied the parent doesn't have control. Remember, the percentages are just a guideline.

[NikkiSkupnjak]

The equity method is how the owner accounts for ownership of the investment for their book purposes. The acquisition method is the method used for consolidating and is used when making eliminating entries for the worksheet. They will actually use both methods.

Peace declared it's own dividends, so I would think the answer would just be $15,000. Surges dividends declared would be eliminated in the acquisition method I think (or at least 75% of them eliminated–I'm not entirely sure).

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Becker Self-Study, Wiley Test Bank

[Author]

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