On January 2, 2012, Hadley Inc., which reports under IFRS, purchased shares of Letourneau Cycles Corp. for $10 per share. Hadley intends to hold these shares as a long-term investment. During 2012, Letourneau Cycles re- ported profit of $1 million and paid cash dividends of $200,000. The investment's fair value at December 31, 2012, was $950,000.
Hadley's accountant prepared a trial balance as at December 31, 2012, under the assumption that Hadley could exercise significant influence over Letourneau Cycles. Under this assumption, the trial balance included the following accounts and amounts:
Investment in associates..................$960,000
Investment revenue.........................200,000
Instructions
(a) What percentage of the Letourneau Cycles' shares does Hadley own?
(b) What was the amount of the cash dividend that Hadley received from Letourneau Cycles during 2012?
(c) How many shares of Letourneau Cycles did Hadley purchase on January 2?
(d) What questions need to be asked to determine if Hadley has significant influence over Letourneau Cycles?
(e) Assume that, after closely examining the situation, Hadley's auditors determine that Hadley does not have significant influence over Letourneau Cycles. What amount should be reported on Hadley's statement of financial position at December 31 for its investment in Letourneau Cycles? What will be reported on Hadley's income statement for 2012?
(f) How would your answer to (e) change if Hadley reported under ASPE and chose to use the cost model when accounting for its investment in Letourneau assuming that the shares did not trade in an active market?