Reference no: EM132736250
Question - Davis Corporation acquired 40% of the voting common stock of ABC, Inc. on January 1, 20X2, for $250,000, giving Davis Corporation significant influence over the operations of ABC, Inc. For the year ended December 31, 20X2, ABC, Inc.'s audited financial statements reported a net income of $50,000. Also, ABC, Inc. declared and paid total dividends to its shareholders of $25,000 on December 31, 20X2. The fair value of the shares purchased by Davis Corporation was $280,000 on December 31, 20X2.
Required -
a) How should Davis Corporation account for its investment in ABC, Inc.?
b) Prepare the 20X2 journal entries made to account for the investment on Davis Corporation's books.
c) Based on your answers to parts (a) and (b), what is the balance in the "Investment in ABC, Inc." account that will appear in the Statement of Financial Position on December 31, 20X2? Would your answer be any different if the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 159, "Fair Value Option for Financial Assets and Financial Liabilities" were applied?
d) Would any of your journal entries in answer to part (b) have been different if Davis Corporation had acquired 40% of the voting common stock on July 1, 20X2?
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