Investment Income

Part 1

If a company purchases 100% of another company and the amount paid is more than the book value of the company purchased and a positive differential exists, explain the three reasons this might occur. For each of the three provided reasons, explain the process and journal entries that would be made. Provide an example of a company purchase and the result of the overpayment.

If a company purchases 100% of another company and the amount paid is less than the book value of the company purchased and a bargain purchase differential exists, explain the three reasons this might occur. For each of the three reasons, explain the process and journal entries that would be made. Provide an example of a company purchase and the result of the underpayment.

Part 2

The reporting treatment for investments in common stock depends upon the level of ownership and the ability to influence polices of the investee. This reporting treatment may even change over time as ownership levels or other factors change. When investees are not consolidated, the investments are generally reported in the investment section of the balance sheet. However, the investor’s income from those investments is not always easy to find in the investor’s income statement.

How does Chevron Corporation account for the issuance of stock by affiliates?

How does Chevron account for impairments in affiliates?

Summarize the significant accounting for the approximately 10 upstream and downstream investments and comment on the part that these investments have on the balance sheet and income statement of Chevron.