Suppose your company purchases 20% of the outstanding common shares of APEX Software as an investment. You also have the option to purchase the remaining 80%. APEX is developing software (its only activity) that it hopes to eventually package and sell to customers. You do not intend to exercise your option unless your software product achieves commercial viability. APEX has engaged its software engineers to assist in development efforts, and you are fully involved in your software design. Your ownership interest is significant enough to give you influence over APEX software design specifications.

a) Describe the effects on the financial statements of the three possible methods to account for this investment (fair value, capital or consolidation).

b) What accounting method is appropriate for this investment (fair value, equity, or consolidation)? Explain.

Answer rating: 100% (QA)

a Fair value method The investment would be reported on the balance sheet at its fair value and any ... View the full answer