Joined: 21 Dec 2011
Online Status: Offline Posts: 27
Posted: 07 May 2012 at 16:18 | IP Logged
I know someone post this questions before, but I still
haven't find the good explanation for this one, could
someone help?
An auditor's analytical procedures indicate a lower than
expected return on an equity method investment.
This situation most likely could have been caused by:
a. An error in recording amortization of the excess of
the investor's cost over the investment's underlying book
value.
b. The investee's decision to reduce cash dividends
declared per share of its common stock.
c. An error in recording the unrealized gain from an
increase in the fair value of available-for sale
securities in the income account for trading securities.
d. A substantial fluctuation in the price of the
investee's common stock on a national stock exchange
The answer is A. But I don't remember that the external
cost of investment needs to be amortized? What the
journal entry should be? Could someone please give me an
example regarding this issue?
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Topic: Audit Evidence for Equity Method Investme
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