This scenario describes a Sale of Interest in Investee type transaction when you use the Equity Method (EMA) accounting method. When you use the equity method of accounting for a position, you can hold positions that use the Equity Method (EMA) accounting method as well as positions that use the STAR accounting method.
For this scenario, the Entity (EMAENT) has two bases:
- STAT (uses the STAT equity method treatment)
- GAAP (use the Other equity method treatment)
Any other bases that use the generic STAR method of accounting process the Open, Close, and Conversion transactions as they normally do in Eagle Accounting, while all of the Adjustment transactions are not available for generic STAR accounting bases.
STAT Treatment
LOT1 has a current cost of $5,000, LOT2 has a current cost of $4,000, for a total position cost of $9,000. The cash booked on the Sale of Interest transaction is $7,000, closing 75% of the position.
75% of the cost is reduced in this transaction, or $6,750. The system reduces UNREALIZED INCOME/LOSS, unrealized market G/L, and unrealized currency G/L proportionally. Assuming current position balances of $5,000 for UNREALIZED INCOME/LOSS, and $3,000 for Unrealized Market Gain. 75% of the Unrealized Income balance is $3,750, and 75% of the Unrealized Market balance is $2,250.
The investment receivable nets the amount of the close transaction ($7,000) and any distributed income ($3,750).
Ledger entries follow. Accounts added to support the use of the equity method of accounting appear in yellow.
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 0.00 | 6,750.00 |
1002000100 | INVESTMENT RECEIVABLE | 10,750.00 | 0.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 0.00 | 2,250.00 |
1011000103 | UNREALIZED APPRECIATION OF UNDISTRIBUTED INCOME | 0.00 | 3,750.00 |
3006000101 | REALIZED GAIN ON INVESTMENTS | 0.00 | 4,000.00 |
3003000331 | NET UNREALIZED GAIN ALLOCATED TO CAPITAL | 2,250.00 | 0.00 |
3003000401 | UNREALIZED INCOME/LOSS | 3,750.00 | 0.00 |
Other Treatment
LOT1 has a current cost of $8,000, LOT2 has a current cost of $6,000, for a total position cost of $14,000. Note that for the Other treatment, any undistributed income is booked as cost, hence the different starting point from the transaction above. The cash booked on the sale of interest is $10,750, closing 75% of the position.
75% of the position, or $10,500, is closed. Both LOT1 and LOT2 are partially closed, with all UNREALIZED INCOME/LOSS, unrealized market G/L, and unrealized currency G/L relieved proportionally. Assuming current position balances of $5,000 for Undistributed Investment Income, and $3,000 for Unrealized Market Gain. 75% of the Undistributed Income balance is $3,750, and 75% of the Unrealized Market balance is $2,250.
The Other treatment accounting reduces cost by the proportional reduction in undistributed income, with the same $10,750 of investment receivable.
Ledger entries follow. Accounts added to support the use of the equity method of accounting appear in yellow.
Account | Account | Debit | Credit |
|---|---|---|---|
1010000100 | COST OF INVESTMENTS | 0.00 | 10,500.00 |
1002000100 | INVESTMENT RECEIVABLE | 10,750.00 | 0.00 |
1011000101 | UNREALIZED APPRECIATION OF INVESTMENTS | 0.00 | 2,250.00 |
3006000101 | REALIZED GAIN ON INVESTMENTS | 0.00 | 250.00 |
3003000331 | NET UNREALIZED GAIN ALLOCATED TO CAPITAL | 2,250.00 | 0.00 |
4001000107 | UNDISTRIBUTED INVESTMENT INCOME | 3,750.00 | 0.00 |
4001000108 | INVESTMENT INCOME | 0.00 | 3,750.00 |
Both transactions create a cash receivable record, settled separately.
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