Ontario Trust Corporation (OTC) purchased 5,000 shares of Lilly Company for $25 per share on November 1,

Question:

Ontario Trust Corporation (OTC) purchased 5,000 shares of Lilly Company for $25 per share on November 1, Year 1. As allowed under IFRS 9, OTC chose to classify its investment in Lilly’s equity as FVOCI at the time of purchase. Lilly paid a dividend of $1.10 per share on December 1. The year-end market price of Lilly’s stock was $28. OTC subsequently sold all 5,000 shares for $27.

Required:

Prepare the journal entries required under IFRS as well as those that would be required under U.S. GAAP. Comment on how the investment in Lilly affected OTC’s pretax income in Years 1 and 2, as well as how income would differ if OTC were a U.S. company

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... 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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