Which method should be used to best reflect the performance

Assignment Help Other Subject

Reference no: EM132212943

Question: Hil Company purchased 10,000 common shares (10%) of Ton Inc. on January 1, Year 4, for $345,000, when Ton's shareholders' equity was $2,600,000, and it classified the investment as a FVTPL security. On January 1, Year 5, Hil acquired an additional 15,000 common shares (15%) of Ton for $525,000. On both dates, any difference between the purchase price and the carrying amount of Ton's shareholders' equity was attributed to land. The market value of Ton's common shares was $35 per share on December 31, Year 4, and $37 per share on December 31, Year 5. Ton reported net income of $500,000 in Year 4 and $520,000 in Year 5, and paid dividends of $480,000 in both years.

The management of Hil is very excited about the increase in ownership interest in Ton because Ton has been very profitable. Hil pays a bonus to management based on its net income determined in accordance with GAAP.

The management of Hil is wondering how the increase in ownership will affect the reporting of the investment in Ton. Will Hil continue to classify the investment as FVTPL in Year 5? What factors will be considered in determining whether the equity method should now be used? If the equity method is now appropriate, will the change be made retroactively? They would like to see a comparison of income for Year 5 and the balance in the investment account at the end of Year 5 under the two options for reporting this investment. Last but not least, they would like to get your opinion on which method should be used to best reflect the performance of Hil for Year 5.

Required: Respond to the questions raised and the requests made by management. Prepare schedules and/or financial statements to support your presentation.

Reference no: EM132212943

Questions Cloud

Prepare a balance sheet and statement of cash flows : Arborista, Inc. plants trees and shrubs for homeowners. The trees are purchased from and delivered by a sister company, Trees-R-Us, Inc.

Explaining what the products have in common : Go on line and look up the following applications, and write up a 1 to 2 page summary explaining what these products have in common and what makes them unique.

What are four important tactical tasks for a negotiator : As a junior congress person you have been asked to help promote a bill to allow casino gambling in your state. There is much opposition to this bill.

Determine the number of equivalent units : Lake Surf Company uses an automated process to clean and polish its merchandise items. For March 2017, the company conducted the following activities.

Which method should be used to best reflect the performance : The management of Hil is wondering how the increase in ownership will affect the reporting of the investment in Ton. Will Hil continue to classify.

Define the scope of an it compliance audit : Define the scope of an IT compliance audit that would verify whether or not this organization is in compliance with the laws you identified.

Determine design techniques and guidelines to help deter : Describe how the concepts of territoriality and natural surveillance can help determine design techniques and guidelines to help deter crime.

Analyze proper physical access control safeguards : Analyze proper physical access control safeguards and provide sound recommendations to be employed in the registrar's office.

Having awareness of how people are motivated is component : Having an awareness of how people are motivated is a component of ______. In the CAPP Strengths model, weaknesses are ______.

User Account

All Pages