On January 1, 20X6, Loffer Limited purchased 35% of Mings common shares for a price of $
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1. Discuss whether significant influence is present.
2. Assuming that this is an investment in an associate, why is the dividend cash flow not considered the appropriate measure of investment earnings?
3. Will Loffer’s share of earnings be calculated as a simple percentage of earnings? Why not?
4. What value for the patents is implied by Loffer’s purchase price? Why does this impact future earnings?
5. If the investment is accounted for using the equity method, what will be the balance in the investment account at the end of the year? Assume all the excess paid over book value relates to patents and there are no intercompany unconfirmed profits at year- end. Does this balance represent fair value?
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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Related Book For
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
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