Sole versus Shared Control: Does It Really Matter? (Research Assignment) Alpha Inc. and Beta Inc. are co-owners (50% owners) of a joint venture, Ventura Inc., created in early 2006 to build and market a newly conceived product. Neither company has control of the joint venture; all im¬

portant decisions require the agreement of both investor entities.

Alpha sells a key inventory component to the joint venture at a markup, the transfer price hav¬

ing been negotiated with and approved by Beta. During 2006, Ventura (with Beta’s formal ap¬

proval) purchased $1,000,000 of this component from Alpha. (Ventura paid Alpha $1,000,000 cash.) Alpha’s cost was $600,000. As of 12/31/06, Ventura had not shipped any of its newly con¬ ceived product.

Required 1. Because this is a shared control situation instead of a sole control situation, can Alpha report either 100% or at least 50% of the $400,000 intercompany profit for 2006?

2. In your library, or using the FASB’s financial accounting research system (EARS) if available in your school’s computer center (normally stored on a file-server computer), find the AICPA’s Ac¬

counting Interpretations of APB Opinion No. 18, “The Equity Method of Accounting for In¬

vestments in Common Stock,” issued in February 1972. Does it allow any profit recognition in this situation?

3. Assume that (1) Ventura resells the Alpha-acquired inventory for only $600,000 and (2) Ven¬

tura is dissolved. How much cash would Alpha and Beta receive in liquidation if

(a) each had initially invested $500,000 cash and

(b) Ventura reported a $400,000 loss from inception through the liquidation date?

Personal Situations: Interpersonal Skills