Question: Question #1. (20 marks) Consider the following data for intercorporate investments (extracted from Chen Company) : Year Shares Purchased (Sold) Price/Share Price/Share Jan 1 Dec

Question #1.

(20 marks)

Consider the following data for intercorporate investments (extracted from Chen Company):

Year Shares Purchased (Sold) Price/Share Price/Share

Jan 1 Dec 31

20x1 200 $80 $71

20x2 (80) 66 82

20x3 100 75 96

All sales and purchases are assumed to occur on January 1. Price may vary from price on previous day (December 31).

20x1 20x2 20x3

Investee earnings per share $8 $9 $8

Investee dividend per share 4 3 4

Consider the Trading and Equity method for classifying investment

Required:

  1. Show the B/S carrying amount for each of the 3 years if the investment is classified as Trading, and EQUITY (Show calculations) (8 marks)

Balance Sheet Carrying Value

20x1 20x2 20x3

TRADING

EQUITY METHOD

  1. Show the total income recognized for each of the 3 years if the investment is classified as EQUITY, and TRADING. (Show calculations) (12 marks)

20x1 20x2 20x3

TRADING

EQUITY

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