Chapter 9
Investments
462
AP-7B (
1
3
)
On June 1, 2016, Rogers Company purchased 150,000 of Supply Company’s 600,000
outstanding common shares. Rogers Company intends to gain control over decisions related
to quality assurance made by Supply Company’s Board of Directors.
Required
a) What level of influence does Rogers Company have over Supply Company solely
based on the percentage of ownership? Which accounting method should be used for
recording this investment?
b) Based on the current ownership percentage, can Rogers Company control all decisions of
quality assurance made by Supply Company?
AP-8B (
3
)
On March 16, 2016, Victor Company, a public company, purchased 10% of the 1,000,000
outstanding common shares issued by Water Company at a price of $16 per share. Victor
Company is planning to acquire more shares in the future to gradually gain influence over
Water Company’s operating decisions. Victor Company intends to maintain those common
shares for at least 10 years.
During 2016, the following activities occurred in regards to this investment.
1) On June 30, 2016, Victor Company received a cash dividend fromWater Company for $1.08
per share.
2) On December 31, 2016, the year-end date of Victor Company, Water’s common shares
were traded at $15.00 per share.
