Company A purchased a certain number of company B's outstanding voting shares at $20 per share as a long-term investement. Company B had outstanding 20,000 shares of $10 par value stock. Complete the following table relating to the measurement and resporting by Company A after acquisition of the shares of Company B stock.
a. What level of ownership by Company A of Company B is required?
For b,e,f, and g. assume the following
Number of shares acquired of company B stock 2,500 (FV) 7,000 (E)
Net income reported by company B in first year 59,000 (FV) 59,000 (E)
Dividends declared by company B in first year 12,000 (FV) 12,000 (E)
Market price at end of first year, company B stock $17 (FV) $17 (E)
These questions need to be answered for both the market value & Equity methods
b. At acquisition, the investment account on the books of Company A should be debited at what amount?
c. When should company A recognize revenue earned on the stock of company B? Explain
d. After the acquisition date, how should company A change the balance of the investment account with respect to the stock owned in company B (other than for disposal of the investments) ? explain
e. What is the balance in the investment account on the balance sheet of company A at the end of the first year?
f. What amount of revenue from the investment in company B should company Areport at the end of the first year?
g. What amount of unrealized loss should company A report at the end of the first year?