- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 10. Intercorporate Investments
- Subject 4. Joint Ventures
CFA Practice Question
If Investor company, by issuing new stocks, acquires a 30% interest in Investee company at book value, under the proportionate consolidation method, Investor Company will report total assets of
A. $20,500.
B. $19,000.
C. $24,000.
Correct Answer: A
Under the proportionate consolidation method, the percentage owned of the investee company assets and liabilities are added to the investor company's balance sheet. In this case, total assets will be $19,000 + 30% * $5,000 = $20,500.
User Contributed Comments 7
| User | Comment |
|---|---|
| robbe1 | If the stake is bought with cash, total assets stays at $19k. |
| turtle | exactly :-) |
| raner | why? will the CA(Cur Asset) account be reduced by the cash paid out? |
| katybo | I think so |
| ilzina | if investor company obtains additional funds by issuing new shares, the assets of investor go up by 1k. so 20k -1k (payment) + 30% x5k = 20.5k |
| kodali | Good Comment Robbie |
| davidt876 | no don't encourage him! he's wrong! |