Question
Company A and Company B entered into a joint venture to manufacture components used by both companies. The JV has been quite successfully for a
Company A and Company B entered into a joint venture to manufacture components used by both companies. The JV has been quite successfully for a number of years. Company A & B both contributed 50 percent of the equity when the joint venture was created. Company A purchases roughly 70 percent of the output of the joint venture and Company B purchases 30 percent. Company A & B have equal representation on the JVs board of directors and participate equally in its management. JV profits are distributed at year-end based on total purchases by each company.
Required:
Company A has been using the equity method to report its investment in the joint venture; however,
As financial vice president believes that each company should use pro rata consolidation. As a senior accountant at Company A, you have been asked to discuss those situations in which pro rata consolidation may be appropriate.
What are your recommendost:ations for Company A to continue to use the equity method or switch to pro rata consolidation? Remember to include citations using independent and authoritative support for your discussion.
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