# Assignment 2.docx - Question 1 a. Cat owns 25% of common...

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Question 1a. Cat owns 25% of common shares of Mouse => Significant Influence =>Equity Method.1st Schedule:Cost of investment: \$1,800,000Carrying value of Mouse: \$6,400,000 * 25% = 1,600,000=> Acquisition Differential: 1,800,000 – 1,600,000 = 200,000Allocated:FV-CVFVIsMachine700,000-1,000,000(300,000)*25%= (75,000)=> Goodwill: 200,000 – (75,000) = 275,0002nd Schedule:Balance at Acq dateAmortization/ ImpairmentBalanceJan 1, Y4Y4Y5Dec 31, Y5Machine (3y)(75,000)25,00025,000(25,000)Goodwill275,0000(41,250)233,750200,00025,000(16,250)208,750ADOpening RECons ISCons BS15%*275,000 = 41,250, 75,000/3 = 25,000Jan 1, Y4Investment in Mouse1,800,000Cash1,800,000Dec 31, Y4Investment in Mouse60,000Equity Income60,00025%*240,000Cash50,000Investment in Mouse50,00025%200,000Investment in Mouse25,000Equity Income25,00075,000/3Dec 31, Y5Investment in Mouse45,000Equity Income45,00025%*180,000Cash55,000Investment in Mouse55,00025%220,000
Equity Income16,250Investment in Mouse16,25041,250-25,000Jan 1, Y6Impairment Loss208,750Investment in Mouse208,750(1,800,000+60,000-50,000+25,000+45,000-55,000-16,250)- 1,600,000 = 208,750b. Cat owns 25% of common shares of Mouse. There is only one other shareholder who owns75% of the Mouse common shares. => No influence & No FV =>Cost MethodJan 1, Y4Investment in Mouse1,800,000Cash1,800,000Dec 31, Y4Cash50,000Dividend Income50,00025%200,000Dec 31, Y5Cash55,000

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Generally Accepted Accounting Principles, Par Ltd