Advance Accounting

You work in a CPA firm. Your manager walks into your cubicle and says, “One of our clients is thinking about investing in a company. He wants to know what the difference is between the equity method and cost method of accounting.”

1. Prepare 4–5 slides in PowerPoint with speaker notes, and explain the following items:
   • What are the GAAP requirements for reporting an investment using the equity method of accounting?
   • Using the equity method of accounting, how would a company report the:
     • original investment
     • net income
     • dividends received from the invested company
   • Create a simple example, and show the journal entries for recording the:
     • investment in the books
     • net income
     • dividends issued by the company
2. Prepare 4–5 slides in PowerPoint with speaker notes, and explain the following items:
   • What are the GAAP requirements for reporting an investment using the cost method of accounting?
   • Using the cost method of accounting, how would a company report the:
     • original investment
     • net income
     • dividends received from the invested company
   • Create a simple example, and show the journal entries for recording the:
     • investment in the books
     • net income
     • dividends issued by the company