Question

How do you find the Investment in a Subsidiary two years after acquisition, given the following info (can you please give an explanation):

Peter Co acquired 90% of Sam Co. for $2,700,000 on Dec 31, 2015. At the date of acquisition, Sam Co. had capital stock of $2,000,000 and retained earnings of $500,000. All of Sam's assets and liabilities were recorded at fair values when Peter acquired its interest. The excess over book value is due to previously unrecorded patents and is being amortized over a 10 yr period. Sam's retained earnings on Jan 1, 2017 was $700,000. What is the Investment in Sam on Dec 31, 2017.

What if this were for 3, 4, or 5 years after acquisition, is the same thing done to compute Investment in Sam, with similar info given ?

Answer 1

Long-term investments are investments which are made with the mindset of holding it for a period longer than 12 months.

Long-term investments are valued at historical cost. provisions or decreases are only made to the investments if there is a decline in the market value of the investment which is not temporary and if there is an increase no changes are made to the investments

In this case, Peter Co acquired 90% of Sam Co. for $2,700,000 on Dec 31, 2015. and has been holding it till 2017 i.e, two years after the acquisition hence it is considered as a long term investment and long term assets are valued at cost so, the investment in the subsidiary will be $2,700,000 itself until and unless there is a decrease in the value of the investment which is not temporary

there will be no change in the value of the assets in the continuing years of 3,4and 5