Question
According to APB 18, the Equity method allows for accounting up to the point of zero balance. While it suggests to stop accounting for investment
According to APB 18, the Equity method allows for accounting up to the point of zero balance. While it suggests to stop accounting for investment below zero, accountants still have the need to know when to restart accounting under normal accounting. According to our instructor, it might be appropriate to apply his methodology referred to as "reverse accounting." Suppose you have a 50% investment with a begining balance of $100 and the investee incurred a lost for the following 10 years. Determine what the reversal account would show after 10 years of $100 lost each year. How much would the investee have to earn in the 11th year before the investor can start accounting normally for its investment again (i.e., to stop reversal accounting).
According to APB 18, the Equity method allows for accounting up to the point of zero balance. While it suggests to stop accounting for investment below zero, accountants still have the need to know when to restart accounting under normal accounting. According to our instructor, it might be appropriate to apply his methodology referred to as "reverse accounting." Suppose you have a 50% investment with a begining balance of $100 and the investee incurred a lost for the following 10 years. Determine what the reversal account would show after 10 years of $100 lost each year. How much would the investee have to earn in the 11th year before the investor can start accounting normally for its investment again (i.e., to stop reversal accounting).
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