Chapter 9
Investments
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d) What would be the balance of the investment on Alberta Holding’s books on December
31, 2016?
Analysis
Assume by December 2016, Alberta’s market analyst noticed that Brain Company’s common
shares are now traded at $8 per share, significantly higher than the original purchase price
at the beginning of 2016. Should this change be reflected on Alberta Holding’s financial
statements? Give analysis on whether Alberta Holding should make adjustments at its year-
end to reflect this significant change in value.
AP-10B (
3
)
Elle Company is a private company that follows ASPE. On August 1, 2016, the company
purchased 35% of Feng Company’s 100,000 common shares outstanding. Elle Company paid
$630,000 of cash in total for those shares. Elle Company is considered to have significant
influence over Feng Company and applies the cost method for recording this investment. Elle
has a year-end on December 31.
Required
a) Prepare journal entries for the acquisition of Feng Company’s common shares by Elle
Company.
b) Prepare journal entries for the dividends received from Feng Company on December 1,
2016. Feng Company paid $1 cash dividend per common share.
