On July 1, 2018, Fontaine Company purchased for cash 40% of the
outstanding common stock of Knoblett Company. Both Fontaine Company
and Knoblett Company have a December 31 yearend. Knoblett Company,
whose common stock is actively traded in the over-the-counter
market, reported its total net income for the year to Fontaine
Company and also paid cash dividends on November 15, 2018, to
Fontaine Company and its other stockholders.
How should Fontaine Company report the above facts in its December
31, 2018, balance sheet and its income statement for the year then
ended? Discuss the rationale for your answer.
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