Company A purchased a certain number of Company B's outstanding voting shares at $20 per share as a long-term investment. Company B had outstanding 20,000 shares of $10 par value stock. Complete the following table relating to the measurement and reporting by Company A after acquisition of the shares of Company B stock.

Transcribed Image Text:

Fair Value Equity Questions Method Method a. What level of ownership by Company A of Company B is required to apply the method? For b, e, f, and g, assume the following: Number of shares acquired of Company B stock Net income reported by Company B in first year Dividends declared by Company B in first year Market price at end of first year, Company B stock 7,000 2,500 $59,000 $12,000 $12,000 $59,000 $ 17 $ 17 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? Explanation required. 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 investment)? Explanation required. 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 A report at the end of the first year? g. What amount of unrealized loss should Company A report at the end of the first year? %24