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Compute the gain or loss on disposal of the investment

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Question - January 1, 2017, Parent Company purchased 15% of the outstanding shares of ABC Company for $185,000. ABC Company's book value of the shares is $1,000,000 with a par value of $2.50. Parent Company incurred $25,000 in transactions costs.

The net income of ABC Company for 2017 was $1,500,000 and dividends declared amounted to $200,000.

The net loss of ABC Company for 2018 was $900,000 and they declared dividends of $150,000.

January 1, 2019 Parent Company sold this investment for $225,000. The Fair Market value of this investment December 31, 2017 was $175,500 and December 31, 2018 it was $189,000.

1. Does this investment represent less-than significant influence, significant influence or control? Please explain.

2. What is the ending book value of the investment under each of the following?

a. Cost/amortized cost Model

b. Fair Value Net Income Model

c. Fair Value Other Comprehensive Income Model

Prepare the journal entries to record the above share purchase transaction along with the related subsequent year end information for 2017 and 2018.

3. Compute the gain/loss on disposal of the investment at January 1, 2019 under each of the models. Prepare the journal entries to record the sale on January 1, 2019.

Reference no: EM132555959

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