In addition to the assignment in Connect, write a memo as directed below, using what you learned from the Connect assignment and from this module. You should refer to the FASB Accounting Standards Codification®(FASB ASC), specifically, when writing your memo.
Williams Corporation and Jones Company established a joint venture to manufacture components for both companies on January 1, 20X1, and have operated it quite successfully for the past four years. Williams and Jones both contributed 50% of the equity when the joint venture was created. Willams purchases approximately 70% of the output of the joint venture and Jones purchases 30%. Willams and Jones have equal numbers of members on the board of directors of the joint venture and participate equally in the management of the joint venture. Joint venture profits are distributed at year-end on the basis of total purchases by each company.
Willams has been using the equity method to report its investment in the joint venture. However, Willams's financial vice president believes that each company should use pro-rata consolidation.
As the Controller, you have been asked to prepare a memo discussing those situations in which pro-rata consolidation may be appropriate and to offer your recommendation as to whether Williams should continue to use the equity method or switch to pro-rata consolidation.
Include in your memo citations and quotations from the ASC to support your arguments.
Writing Assignment Requirements:
- Write a 1-2 page memo double-spaced, not counting the title and the reference page(s) and any Exhibit(s) or Appendices. Submissions in excess of 2 pages but no more than 4 pages are acceptable.
- Copy and paste each question in bold type into your paper with your answers to each question directly underneath each question.
- Use terms, evidence, and concepts from the module interactive lecture and readings, including professional business language.
- Cite at least 3 credible academic or professional sources for this assignment.