Huge Co (HC) is the parent company of a group of companies engaged in a wide range
Question:
Huge Co (HC) is the parent company of a group of companies engaged in a wide range of businesses. On January 1, 20x0, the company made the following transactions:
(1) Provided a $100,000 zero-interest loan to one of its subsidiaries. The loan is repayable on December 31, 20x1. HC's incremental indebtedness rate is 5% per year and the subsidiary's incremental indebtedness rate is 6% per year.
(2) Provided a two-year interest-free loan of $100,000 to one of its directors, on the condition that the director must serve the company for the next two years. The market interest rate is 5% per year.
(3) Purchased 200,000 shares of a public limited company, Saville Ltd, at a price of $10 per share and incurred transaction costs of $50,000. The shares purchased represent approximately 1% of Saville's issued share capital. The trading price of the shares as of December 31, 20x0 increased to $15 per share.
Required:
(a) Advise HC on the appropriate journal entries required to record the loan to the subsidiary and related transactions for 20x0 and 20x1 on HC's books (assume the $100,000 loan is duly repaid by the subsidiary on December 31). December 20x1).
(b) Prepare journal entries to record the loan to the manager on January 1 and December 31, 20x0.
(c) Discuss how the above share acquisition would be accounted for in HC's financial statements for the year ended December 31, 20x0 and show the corresponding journal entries.
International Business Law And Its Environment
ISBN: 9781305972599
10th Edition
Authors: Richard Schaffer, Filiberto Agusti, Lucien J. Dhooge