Reference no: EM132691474
Question - On January 1, 2019, Entity X, an SME and Entity Y, an SME, incorporated Entity Z by investing $1,000,000 each for 50% interest. For the year ended December 31, 2019, Entity Z reported net income of $400,000 and distributed dividends to common stockholders amounting to $100,000. On December 31, 2019, Entity Y estimated that the fair value of its investment in Entity Z is $1,500,000. The cost of selling this investment is estimated at 30%. The value in use of the investment based on discounted cash flows of the investment is $1,100,000.
1. What is the book value of the Investment in Entity Z to be reported in the statement of financial position of Entity Y as of December 31, 2019 under the Fair Value Model?
A) 1,100,000
B) 1,050,000
C) 1,150,000
D) 1,500,000
2. What is the book value of the Investment in Entity Z to be reported in the statement of financial position of Entity Y as of December 31, 2019 under the Equity Model?
A) 1,500,000
B) 1,100,000
C) 1,050,000
D) 1,150,000
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