Assignment

Part I



Prepare your written response in the areas below. Use a separate section to address a separate part of the question.



The equity method is the most appropriate method for representing an investment of this type since Big Company acquired Litt

Company at 100%. The equity method is used when significant influence is excercised; which means that one company holds 2

more of another company's stock (Baker, Christensen & Cottrell, 2012). Under this method, the investor recognizes income from

investment as the investee earns the income and this investment is reported as one line in the investee's balance sheet (Baker,

Christensen & Cottrell, 2012). Income recognized from the investee is reported as one line also on the investor's income statem

and this investment represents the investor's share of the investee's net assets (Baker, Christensen & Cottrell, 2012). This inco

recognized is the investor's share of the invetee's net income (Baker, Christensen & Cottrell, 2012).



Asset acquistion is an investment in Little Company by Big Company in the amount of $200,000 acquired at 100% (Baker, Christ

& Cottrell, 2012). The acquistion of Little Company by Big Company for Cash is a debt of investment in Little Company in the am

of $200,000 and a credit in Cash by Big Company (Baker, Christensen & Cottrell, 2012). Common stock is issued as considered i

Company by Big Company for 10,000 shares in the amount of $25,000 and additional paid in capital in the amount of