total income=net income? total net assets=equity?

问题如下：

Question Compared to using the equity method of accounting for joint ventures, the proportionate consolidation method results in the recognition of higher:

选项：

A.A.income. B.B.liabilities. C.C.net assets.

解释：

Solution

1. Incorrect because the single line item on the income statement under the equity method reflects the net effect of the sales and expenses of the joint venture, the total income recognized is identical under the two methods (namely under the equity method and under the proportionate consolidation method).

2. Correct because proportionate consolidation requires the venturer’s share of the assets, liabilities, income, and expenses of the joint venture to be combined or shown on a line-by-line basis with similar items under its sole control. In contrast, the equity method results in a single line item (equity in income of the joint venture) on the income statement and a single line item (investment in joint venture) on the balance sheet. Accordingly, the company's share in the joint venture's liabilities is added to the liabilities under the company's sole control resulting in higher liabilities compared to the equity method that results in a single line item on the balance sheet.

3. Incorrect because the single line item on the balance sheet item (investment in joint venture) under the equity method reflects the investors’ share of the net assets of the joint venture, the total net assets of the investor is identical under both methods (namely under the equity method and under the proportionate consolidation method).

Intercorporate Investments

• analyze how different methods used to account for intercorporate investments affect financial statements and ratios