On January 1, 2017, Gillette Company purchases an investment in Buffalo, Inc., a company whose stock trades over the counter, for $2,700,000, representing 20% of the book value of Buffalo. During the year, Buffalo reports a net income of $942,000 and pays cash dividends of $294,000. The fair value of Buffalo’s stock on December 31, 2017, is $15,000,000. Gillette has a calendar year-end. 

A a. What amount does Gillettey report on its 2017 balance sheet for its investment in Buffalo, if 20% ownership does not imply any significant influence over Buffalo? 

b. What amount does Gillettey report on its 2017 balance sheet for its investment in Buffalo, if 20% ownership implies significant influence over Buffalo?

Answer rating: 100% (QA)

a If 20 ownership does not imply any significant influence over Buffalo Here we have to use cost met... View the full answer