Reference no: EM132472228
Question 1 - During 2018, Infinity Inc. which is a privately held company reporting under the Canadian Accounting Standards for Private Enterprises, held common shares of Ioniq Inc. Transactions in those shares were as follows:
On January 1, 2018, Infinity acquired 20,000 of the 200,000 outstanding common shares of Ioniq at a cost of $10 per share plus brokerage of 1%.
On March 31, 2018, Infinity received a dividend of $0.50 per share on its Ioniq shares.
On July 1, 2018, Infinity acquired an additional 20,000 shares of Ioniq at a cost of $11 per share plus brokerage of 1%.
On September 30, 2018, Infinity received a dividend of $0.60 on its Ioniq shares.
On November 30, 2018, Infinity sold half of its holding in Ioniq for $12 per share and paid brokerage of 1% on that transaction.
On December 31, 2018, shares in Ioniq were trading at $12.50 per share.
During 2018, Ioniq reported a net income of $240,000, earned evenly through the year.
Required -
a) Prepare journal entries for Infinity Inc. for its investment in Ioniq (and related investment income) if the investment was always a non-strategic investment and classified as an investment reported at fair value with the valuation differences going to net income.
b) Prepare journal entries for Infinity Inc. for its investment in Ioniq (and related investment income) if the investment was always a non-strategic investment and classified as an investment reported at fair value with the valuation differences going to other comprehensive income.
c) Prepare journal entries for Infinity Inc. for its investment in Ioniq (and related investment income) if the investment was always a significant influence investment accounted for and reported using the equity method. (ASPE does not require that the investor account for the amortization and impairment of the acquisition differential when using the equity method.)
Question 2 - Samantha Limited has just purchased a 40% interest in Emmet Enterprises Inc. for $4,000,000. Samantha Limited has no other equity investments. You have been asked to advise Samantha Limited about the accounting choices that the company might have with respect to its investment in Emmet Enterprises Inc.
Required -
a) What options might be available if Samantha Limited was a public company and reported in compliance with IFRS?
b) What options might be available if Samantha Limited was a private company and reported under the Canadian Accounting Standards for Private Enterprises?
Question 3 - On January 1, 2016, Pendulum Inc. acquired 10,000 of the 100,000 outstanding shares of Swing Limited for a cash consideration of $100,000 plus brokerage charges of 2%. Pendulum elected to account for its investment at fair value through profit and loss. On that date, Swing Limited had common shares with a carrying value of $500,000 and retained earnings of $300,000.
A year later, Pendulum Inc. acquired an additional 20,000 shares in Swing Limited for a consideration of $220,000 plus brokerage costs of 2%. This purchase gave Pendulum Inc. significant influence over the operating, financing and investing activities of Swing Limited.
On June 30, 2018, immediately after Swing paid its mid-year dividend, Pendulum made a final purchase of an additional 45,000 shares of Swing Limited at a cost of $585,000 plus brokerage costs of 2%. This purchase gave Pendulum Inc. control over Swing Limited. Any acquisition differential arising from these purchases was attributed to some capital assets which had an expected useful life of ten years on January 1, 2017. Pendulum Inc. has decided to account for its investment in its subsidiary using the cost method.
Following are the income, dividends and market value for Swing Limited for 2016, 2017 and 2018:
Income was earned evenly over each year and dividends were paid in equal instalments on June 30 and December 31 each year.
Required - Prepare journal entries to record Pendulum's investment in Swing and the income from the investment for the period from January 1, 2016, to December 31, 2018.