On January 1, 2021, Neitzche Company, a public company, purchased 35% of the common shares of Triple Titanium Inc. for $525,000. The remaining shares (65%) are held by the family members of the company’s founder. Neitzche considers this a strategic investment and a critical step into developing consumer markets. Triple Titanium is currently a supplier to Neitzche. Neitzche placed two members on the 10-person board of directors of Triple Titanium and the two members believe they have been influential on the board through the year. Neitzche and Triple Titanium both have December 31 year ends.

During 2021, Triple Titanium reported profit of $300,000 and paid total dividends of $65,000.

Instructions

a. Refer to the facts in the question. Does Neitzche have significant influence over Triple Titanium?

b. Prepare the following journal entries for Neitzche, assuming significant influence does exist.

1. The acquisition of the investment

2. Investment revenue and receipt of dividends related to the investment

c. During 2022, Triple Titanium reports profit of $240,000 and pays total dividends of $80,000. Prepare the required journal entries related to these transactions on Neitzche’s books.

d. Determine the balance in the investment account on December 31, 2021, and December 31, 2022.

e. Show how the investment account and related revenue accounts would be reported on the financial statements for December 31, 2021.

Taking It Further

If Neitzche purchases an additional 30% of the common shares of Triple Titanium, how would your answer to part (a) change?