Reference no: EM133134048
Question 1 - On January 1, Year 5, Tecumseh Corporation paid $624,000 for 19,500 (20%) of the outstanding shares of Chatham Inc. The investment was considered to be one of significant influence. In Year 5, Chatham reported profit of $107,000; in Year 6, its profit was $117,000. Dividends paid were $72,000 in each of the two years.
Required - Calculate the balance in Tecumseh's investment account as at December 31, Year 6.
Question 2 - Assume that on December 31, Year 6, Tecumseh lost its ability to significantly influence the operating, investing, and financing decisions for Chatham when another party obtained sufficient shares in the open market to obtain control over Chatham. Accordingly, the investment in Chatham was reclassified as a FVTPL investment. The fair value of the Chatham shares was $47 per share on this date.
In Year 7, Chatham reported profit of $127,000 and paid dividends of $62,000. On December 31, Year 7, Tecumseh sold its investment in Chatham for $49 per share.
Required -
1. Prepare the journal entry at December 31, Year 6, to reclassify the investment from significant influence to FVTPL.
2. Prepare all journal entries for Year 7 related to Tecumseh's investment in Chatham?
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