Chapter 9
Investments
448
AP-12A
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Ian Company, a public company, had the following activities related to its investments over
the course of two years. It has a year-end of December 31.
1) On January 31, 2016, it acquired 6% of the 1,000,000 outstanding common shares of
James Company, for the purpose of short-term trading, at $16.00 per share
2) On December 31, 2016, Ian Company received a cash dividend from James Company of
$1.50 per share
3) On December 31, 2016, James Company’s common shares were traded at $16.50 per share
on the local stock exchange
4) On January 1, 2017, Ian Company purchased 25% of the 800,000 Lemon Inc.’s outstanding
common shares for a price of $1,100,000. This purchase was enough to give Ian Company
significant influence over Lemon Inc.’s operational decisions.
5) On December 31, 2017, Ian Company received a cash dividend payment of $1.50 per share
from James Company and $0.50 from Lemon Inc. James Company and Lemon Inc. also
reported earnings of $500,000 and $650,000, respectively, for 2017.
6) On December 31, 2017, the shares of James Company and Lemon Inc. were trading at
$14.00 and $4, respectively.
Required
a) Discuss which accounting method should be used by Ian Company for each type of
investment.
