Asked you to prepare a memo addressing the major

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asked you to prepare a memo addressing the major accounting implications of the client’s requests. Required: (a) Prepare the memo to the partner. (b) Briefly discuss how the following three investor groups would classify and account for their investment: (i) Investor in Limited Partnership units . (ii) Investor in royalties . (iii)Investor in movie rights. PROBLEMS Problem 1 PART A On January 1, Year 5, Anderson Corporation paid $650,000 for 20,000 (20 percent) of the outstanding shares of Carter Inc. The investment was considered to be one of significant influence. In Year 5, Carter reported profit of $95,000; in Year 6, its profit was $105,000. Dividends paid were $50,000 in each of the two years. Required: Calculate the balance in Anderson’s investment account as at December 31, Year 6. PART B Now assume that on December 31, Year 6, Anderson lost its ability to significant- ly influence the operating, investing, and financing decisions for Carter when another party obtained sufficient shares in the open market to obtain control over Carter. Accordingly, the investment in Carter was reclassified as a FVTPL investment. The fair value of the Carter shares was $35 per share on this date. In Year 7, Carter reported profit of $115,000 and paid dividends of $50,000. On December 31, Year 7, Anderson sold its investment in Carter for $37 per share.
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68 CHAPTER 2 INVESTMENTS IN EQUITY SECURITIES Required: (a) Prepare the journal entry at December 31, Year 6, to reclassify the investment from significant influence to FVTPL. (b) Prepare all journal entries for Year 7 related to Anderson’s investment in Carter. Problem 2 Baskin purchased 20,000 common shares (20 percent) of Robbin on January 1, Year 5, for $275,000 and classified the investment as FVTPL. Robbin reported net income of $85,000 in Year 5 and $90,000 in Year 6 and paid dividends of $40,000 in each year. Robbin’s shares were trading at $15 per share on December 31, Year 5, and January 1, Year 6. On January 1, Year 6, Baskin obtained significant influence over the operating, investing, and financing decisions of Robbin when the control- ling shareholder sold some shares in the open market and lost control over Robbin. Accordingly, the investment in Robbin was reclassified to an investment in associate. On December 31, Year 6, Baskin sold its investment in Robbin for $16 per share. Required: Prepare all journal entries for Years 5 and 6 related to Baskin’s investment in Robbin. Problem 3 On January 1, Year 5, Blake Corporation purchased 30 percent of the outstanding common shares of Stergis Limited for $1,500,000. The following relates to Stergis since the acquisition date: Year Net income Other comprehensive income Dividends paid Year 5 $ 42,000 $10,000 $60,000 Year 6 120,000 25,000 60,000 Required: (a) Assume that the number of shares held by Blake is enough to give it significant influence over Stergis. Prepare all the journal entries that Blake should make regarding this investment in Year 5 and Year 6.
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  • Fall '12
  • Smith
  • Balance Sheet, Comprehensive income, Generally Accepted Accounting Principles, hiL01537_ch02_039-070.indd Page

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