Reference no: EM132875973

Questions -

Q1. On April 1, Belle Inc. bought 40% of the outstanding ordinary shares of an associate for $4,000,000. On this date, the investee's net assets totaled to $8,000,000 and Belle Inc. can't attribute the excess of cost of the investment over the equity in the investee's net assets to any particular factor. The investee reported net income of $1,000,000 for the current year. How much is the balance of Investment in Associate at the end of the current year?

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.

a. How much should be recorded as investment income for the current year assuming that the preference share capital of Pen Inc. are non-cumulative and that Pen Inc. paid $1,000,000 cash dividends for the current year?

b. Assuming that the preference share capital of Pen Inc. are non-cumulative and that Pen Inc. paid $1,000,000 cash dividends for the current year. What amount should be the balance of Investment in Pen Inc. at the end of the end of the current year?