Chapter 9
Investments
452
b) Assume that on March 1, 2016, Koko Company followed ASPE and purchased 40% of
Engrid Company’s common shares instead of 5% (i.e. 40,000 common shares). Koko paid
$500,000 for these shares and uses the cost method to account for significant influence.
Prepare the journal entries required from March 1 to October 31, 2016. Adjust the
dividends received for 40% of ownership.
Date
Account Title and Explanation
Debit
Credit
AP-14A (
3
)
On January 1, 2016, PUT Company acquired 40% of the 800,000 outstanding common shares
from SIMA Company and paid $3,500,000 in cash. On July 1, 2016, SIMA Company reported
a profit of $830,000 on its annual financial statements ending June 30, 2016. SIMA Company
paid cash dividends of $0.68 per common share on July 30, 2016. PUT Company is a private
company that follows ASPE standards. However, it is considering to adopt IFRS standards in
the near future. The CEO wants to know how much of a difference net income can be if it uses
IFRS standards instead (equity method). Calculate the difference in net income for the CEO,
showing your calculation of income under each method.
