On January 1, Year 2, Grow Corp. paid $200,000 to purchase 20,000 common shares of UP Inc.,

Question:

On January 1, Year 2, Grow Corp. paid $200,000 to purchase 20,000 common shares of UP Inc., which represented an 8% interest in UP. On December 27, Year 2, UP declared and paid a dividend of $0.50 per common share. During Year 2, UP reported net income of $400,000. On December 31, Year 2, the market value of UP's common shares was $11.50 per share.

(a) Indicate the amounts to be reported in the investment account on Grow's balance sheet at the end of Year 2 and the amounts to be reported in Grow's net income and other comprehensive income for Year 2 under two scenarios:

(i) Grow designates its investment in UP as held for trading, that is, FVTPL.

(ii) Grow designates its investment in UP as not held for trading, that is, FVTOCI.

(b) Which of the above reporting methods will report the most favourable current ratio, debt-to-equity ratio, and return on shareholders' equity on Grow's Year 2 financial statements? Briefly explain.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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