Answered step by step
Verified Expert Solution
Question
1 Approved Answer
- 1 C 5 - 3 Pro Rata Consolidation Rose Corporation and Krome Company established a joint venture to manufacture components Research for both companies'
C Pro Rata Consolidation
Rose Corporation and Krome Company established a joint venture to manufacture components
Research for both companies' use on January X and have operated it quite successfully for the past four years. Rose and Krome both contributed percent of the equity when the joint venture was created. Rose purchases roughly percent of the output of the joint venture and Krome purchases percent. Rose and Krome have equal numbers of representatives on the joint venture's board of directors and participate equally in its management. Joint venture profits are distributed at yearend on the basis of total purchases by each company.
Required
Rose has been using the equity method to report its investment in the joint venture; however, Rose's financial vice president believes that each company should use pro rata consolidation. As a senior accountant at Rose, you have been asked to prepare a memo discussing those situations in which pro rata consolidation may be appropriate and to offer your recommendation as to whether Rose should continue to use the equity method or switch to pro rata consolidation. Include in your memo citations of and quotations from the authoritative literature to support your arguments.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started