Question

On January 1, 2018, Company A paid $150,000 for 15,000 shares of Company B Company at...

On January 1, 2018, Company A paid $150,000 for 15,000 shares of Company B Company at $10 per share. This purchase gave Company A 15% ownership of Company B. In 2018, Company B reported net income of $180,000 and paid dividends to all shareholders of $50,000. The market value of Company B shares at December 31, 2018 was $12 per share.

On January 1, 2019 Company A purchased an additional 25,000 shares (25%) of Company B. This last purchase gave Company A the ability to apply significant influence over Company B.

What is the prior period adjustment to Retained Earnings that Company A will need to record on January 1, 2019?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Equity methods to be recorded either as per

  • FVTNI - If % holding is less than 20%
  • Equity method - if % holding >= 20% upto 50% and significant influence exists

As per FASB's update, if % holding changes resulting in Significant influence(20% to 50% ownership) from no influence (less tha 20%) which results in change in method from FVTNI to Equity method, the new method should be followed prospectively from current year i.e. no effect on prior period.

In case of company A, In 2019 % ownership changed from 15% to 25% along with significant influence which needs to be given effect prospectively i.e. year 2019 and onwards. Hence, no prior period adjustment will be made to the opening retained earnings on year 2019.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2012, Mehan, Incorporation purchased 15,000 shares of Cook Company for $150,000 giving Mehan...
On January 1, 2012, Mehan, Incorporation purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2013 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2012, was $1,000,000. The book value of Cook on January 1, 2013, was $1,150,000. Any excess of cost over book value for this...
Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30,...
Abby Company had 150,000 shares of common stock outstanding on January 1, 2018. On September 30, 2018, Abby sold 30,000 shares of common stock for cash. Abby also had 100, 8%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible into 20 shares of common stock. The bonds sold originally at face value. The company also had 10,000 executive stock options outstanding that allowed executives to purchase shares of stock for $11.00. The average share price for the year...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at $10 per share. Baltimore obtained significant influence as the purchase represents a 40% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $15,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $75,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $25...
Change to Equity Method On January 1, 2018, Lion Company paid $600,000 for 10,000 shares of...
Change to Equity Method On January 1, 2018, Lion Company paid $600,000 for 10,000 shares of Wolf Company's voting common stock, which was a 10% interest in Wolf. Lion does not have the ability to exercise significant influence over the operating and financial policies of Wolf. Lion received dividends of $1.00 per share from Wolf on October 2, 2018. Wolf reported net income of $400,000 for the year ended December 31, 2018, and the ending market price of its shares...
Equity section of Sol Corporation shows the following on January 1, 2018. Shares Ordinary – Ordinary,...
Equity section of Sol Corporation shows the following on January 1, 2018. Shares Ordinary – Ordinary, $1 par value 1,000,000 shares authorized, 500,000 shares issued and outstanding $500,000 Shares premium – Ordinary 500,000 Retained earnings 1,750,000     Total Equity       $ 2,750,000 During the year, the company had following transactions occurred: Mar. 1 Issued 50,000 ordinary shares for $150,000. Jun. 1 Acquired 5,000 shares of its shares for the treasury at $4 per share Sep. 1 Sold 3,000 shares at...
1) On January 2, 2018, Baltimore Company purchased 16,000 shares of the stock of Towson Company...
1) On January 2, 2018, Baltimore Company purchased 16,000 shares of the stock of Towson Company at $10 per share. Baltimore obtained significant influence as the purchase represents a 35% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $17,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $65,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to...
On January 2, 2018, Alpaca Company purchased 14,000 shares of the stock of Zebra Company, and...
On January 2, 2018, Alpaca Company purchased 14,000 shares of the stock of Zebra Company, and did not obtain significant influence.  The investment is intended as a long-term investment.  The stock was purchased for $12 per share, and represents a 10% ownership stake.  Zebra Company made $55,000 of net income in 2018, and paid dividends of 50 cents per share on December 15, 2018.  On December 31, 2018, Zebra Company's stock was trading on the open market for $15 per share at the end...
On January 2, 2018, RF Company purchased 14,000 shares of the stock of Zebra Company, and...
On January 2, 2018, RF Company purchased 14,000 shares of the stock of Zebra Company, and did not obtain significant influence.  The investment is intended as a long-term investment.  The stock was purchased for $12 per share, and represents a 10% ownership stake. Zebra Company made $55,000 of net income in 2018, and paid dividends of 50 cents per share on December 15, 2018.  On December 31, 2018, Zebra Company's stock was trading on the open market for $15 per share at the...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at...
On January 2, 2018, Baltimore Company purchased 10,000 shares of the stock of Towson Company at $14 per share. Baltimore obtained significant influence as the purchase represents a 30% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $17,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $60,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $25...
On January 2, 2018, Baltimore Company purchased 9,000 shares of the stock of Towson Company at...
On January 2, 2018, Baltimore Company purchased 9,000 shares of the stock of Towson Company at $15 per share. Baltimore did NOT obtain significant influence as the purchase represents a 5% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $19,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $65,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT