Cassidy Concrete Corp. acquired 20% of Enda Inc.'s common shares on January 1, 2018, by paying $6 million for 200,000 shares. Enda declared a $0.50-per-share cash dividend, which Cassidy received on June 30 and again on December 31. Enda reported net income of $3,360,000 for the year. At December 31, the market price of the Enda shares was $31 per share.
Instructions
(a) Prepare the journal entries for Cassidy Concrete for 2018, assuming Cassidy cannot exercise significant influence over Enda and uses the fair value through profit or loss model.
(b) Prepare the journal entries for Cassidy Concrete for 2018, assuming Cassidy can exercise significant influence over Enda and uses the equity method.
(c) What factors help determine whether a company has significant influence over another company?
(d) Prepare the journal entries for Cassidy Concrete for 2018, assuming that the company reports under ASPE and has chosen to account for its investment using the cost model because the shares did not trade in an active market.
(e) Under ASPE, why do you think companies can choose to use the cost model?
(f) For parts P12.6B (a), P12.6B (b), and P12.6B (d) above, calculate the ending balance in each account affected by this investment. You may omit the Cash account.