Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings. At the end of four years, the Investment in Billings account on Avery's books is $198,984. What items constitute this balance?
What will be an ideal response?
Since the equity method has been applied by Avery, the $198,984 is composed of four items:
(a.) The acquisition value of consideration transferred by the parent;
(b.) The annual accruals made by Avery to recognize income as it is earned by the subsidiary;
(c.) The reductions that are created by the subsidiary's payment of dividends;
(d.) The periodic amortization recognized by Avery in connection with the excess fair value allocations identified with its acquisition.
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