Reference no: EM132510328

Problem 1 - On January 1, 2018 Calico Corporation paid $1,200,000 for 40,000 shares of Guppy Corporation's common stock, which represents a 20 percent investment in Guppy. Guppy declared and paid a dividend of $4 per share to its stockholders during the year. Guppy reported net income of $1,040,000 for the year ended December 31.

Required:

a) Determine the balance of Calico's Investment in Guppy account on December 31, 2018 assuming that Calico does not have the ability to exercise significant influence over Guppy.

b) Determine the balance of Calico's Investment in Guppy account on December 31, 2018 assuming that Calico has the ability to exercise significant influence over Guppy.

Problem 2 - On July 1, 2017, Pinto Company bought 20 percent of Cobra Inc.'s capital stock for $15,000. Cobra's net income for the years ended December 31, 2017, and December 31, 2018, were $5,000 and $25,000, respectively. During 2018 Cobra declared a dividend of $35,000. No dividends were declared in 2017.

Required:

a) If Pinto does not have the ability to exercise significant influence over Cobra, how much should Pinto show on its 2018 income statement as income from this investment?

b) If Pinto has the ability to exercise significant influence over Cobra, how much should Pinto show on its 2018 income statement as income from this investment?

Problem 3 - Kilo purchased 15 percent of Wink Company's 250,000 shares of common stock on March 31 for $37,500. On December 31, Kilo purchased an additional 25,000 shares of Wink for $50,000. Wink had not issued any additional stock during the year. Wink reported earnings of $450,000 for the year.

Required:

a) What amount should Kilo report in its December 31 balance sheet as investment in Wink?

b) How much should Kilo show on its income statement as income from this investment?