Sub Corporation has a total of 500,000 common shares issued. On January 2, 2018, Partridge Inc. purchased

Question:

Sub has a total of 500,000 common shares issued. On January 2, 2018, Partridge Inc. purchased a block of these shares in the open market at $10 per share to hold as a long-term investment. At the end of 2018, Sub reported net income of $350,000 and Partridge received a $0.50-per-share from Sub. Sub Corporation's shares were trading at $12 per share at December 31, 2018.
This problem assumes three independent situations related to the accounting for this investment by Partridge:
Situation 1: Partridge purchased 60,000 Sub common shares.
Situation 2: Partridge purchased 125,000 Sub common shares.
Situation 3: Partridge purchased 500,000 Sub common shares.
Instructions
(a) 1. For situation 1, is it likely that significant influence has been achieved? If it has not been achieved, record all journal entries relating to the investment for the year ended December 31, 2018, using the fair value through profit or loss model. If significant influence is met, use the equity method to record these transactions.
2. From the journal entries prepared in (1), calculate the ending balance in the investment account and any related investment revenue accounts.
(b) 1. For situation 2, is it likely that significant influence has been achieved? If it has not been achieved, record all journal entries relating to the investment for the year ended December 31, 2018, using the fair value through profit or loss model. If significant influence is met, use the equity method to record these transactions.
2. From the journal entries prepared in (1), calculate the ending balance in the investment account and any related investment revenue accounts.
(c) When significant influence is achieved, does the investment have to be accounted for using the equity method if the investor is reporting under IFRS? Does this change if the investor is reporting under ASPE?
(d) For situation 3, is consolidation required? Why or why not? Do alternatives to consolidation exist under IFRS? Do alternatives exist under ASPE?
(e) What does consolidation mean? What happens to the investment account when consolidation occurs? Whose name will be on the consolidated financial statements?
(f) What accounting models would most likely be used for each of the situations listed above if Partridge reported under ASPE and the fair value of the Sub shares was unknown?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...