Reference no: EM132869334

Questions -

Q1. 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?

Q2. On July 1, 2020, Mage Corporation bought 20% of the outstanding inventory shares of an investee for $4,000,000 when the fair value of net assets was $20,000,000. Mage Corporation has the ability to exercise significant influence over the operating and financial policies of the investee. The following information regarding the investee are available:

In the income statement for the year ended December 31, 2020, how much should be reported as income from the investment?

Q3. 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.

a. How much is the maximum amount which could be included in Belle Inc.'s income before tax to reflect its "equity in earnings of the investee" for the current year?

b. How much is the balance of Investment in Associate at the end of the current year?