Reference no: EM132872272
Questions -
Q1. During the start of the current year, Holland Co. bought 30,000 shares of an investee's 200,000 outstanding inventory shares for $6,000,000. On that date, the carrying amount of the acquired shares was $4,000,000. The entity attributed the excess of cost over carrying amount to patent with remaining useful life of 10 years. During the year, Disgust Company's officers gained a majority on the investee's board of directors. The investee reported earnings of $5,000,000 for the year and paid dividend of $3,000,000 at year-end. What amount is the balance of "investment in associate" at the current year-end?
Q2. 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?