Under ASPE, what is the accounting issue here? On February 1 of the most recently ended fiscal

Under ASPE, what is the accounting issue here?

 

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On February 1 of the most recently ended fiscal year, Quality paid $400,000 for a 25% interest in the common shares of Hinge Buddy Inc. (HBI). HBI is one of Quality's main suppliers of kitchen hardware. Quality's board was very keen to acquire HBI shares as it was viewed as a "wise strategic move." The CFO and sales manager for Quality have been appointed to the board of directors of HBI. The remaining HBI shares are held by the founder and president of HBI. The journal entry recorded related to this acquisition were: 400,000 Investment in HBI Cash 400,000 HBI has a December 31 year end and reported net income of $1,400,000 for the most recent fiscal year, which is its typical profit level. Bruce is not sure if this investment is being accounted for appropriately. He would like to account for the investment in a way that makes his financial statements "look good." On February 1 of the most recently ended fiscal year, Quality paid $400,000 for a 25% interest in the common shares of Hinge Buddy Inc. (HBI). HBI is one of Quality's main suppliers of kitchen hardware. Quality's board was very keen to acquire HBI shares as it was viewed as a "wise strategic move." The CFO and sales manager for Quality have been appointed to the board of directors of HBI. The remaining HBI shares are held by the founder and president of HBI. The journal entry recorded related to this acquisition were: 400,000 Investment in HBI Cash 400,000 HBI has a December 31 year end and reported net income of $1,400,000 for the most recent fiscal year, which is its typical profit level. Bruce is not sure if this investment is being accounted for appropriately. He would like to account for the investment in a way that makes his financial statements "look good."

Answer rating: 100% (QA)

Regarding the accounting treatment of the investment in HBI Quality has acquired a 25 interest ... View the full answer