Reference no: EM132875317
Questions -
Q1. On January 1, 2017, Marian Co. acquired as a long term investment for $7,000,000 a 40% interest in an investee when the fair value of the net assets was $17,500,000. The investee has reported the following net losses:
2017 - 5,000,000
2018 - 7,000,000
2019 - 8,000,000
2020 - 4,000,000
On January 1, 2019, Marian Co. made cash advances of $2,000,000 to the investee. On December 31, 2020, it is not expected that Marian Co. will provide further financial support for the investee.
a. Assuming in 2021, the investee earned a net income of $3,000,000, what amount must be recognized by Marian Co. as its share in the 2021 net income of the investee?
b. What amount must be recognized by Marian Co. as its share in the 2020 losses of the investee?
Q2. Faye Co. owned 20% of Pen Inc.'s preference share capital and 50% of the ordinary share capital. Pen Inc.'s share capital outstanding comprised the following at year-end:
10% cumulative preference share capital - 2,000,000
Ordinary share capital - 7,000,000
Pen Inc. reported net income of $5,000,000 for the current year.
How much should be recorded as investment income for the current year assuming that the preference share capital of Pen Inc. are non-cumulative?