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Question - On January 1, 2020, Penrith Corporation acquired a 45% ownership interest in Sorrel Company for $575,000. The controller is now preparing his first set of financial statements since the acquisition and is unsure about which method of reporting is most appropriate for the investment. He has come to you for advice.
REQUIRED -
A) State under what conditions it would be appropriate for Penrith to prepare consolidated financial statements to report the investment in Sorrel. As part of your answer, briefly describe the extent of influence implied by the use of consolidation and state 2 factors that might indicate that this extent of influence does exist.
B) State under what conditions it would be appropriate for Penrith to report the investment in Sorrel using the equity method. As part of your answer, briefly describe the extent of influence implied by the use of the equity method and state 2 factors that might indicate that this extent of influence does exist.
C) State under what conditions it would be appropriate for Penrith to report the investment in Sorrel using proportionate consolidation (Proprietary Theory). As part of your answer, identify the extent of influence implied by the use of proportionate consolidation.
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