COMMERCE/BUSINESS 453

SPRING 2015
SOLUTIONS TO ASSIGNMENT 1
QUESTION 1 (20 marks)
PART A
The investment is being accounted for at fair value through other comprehensive income:
Jan 1/13

Investment in Peach Corporation

Cash
(To record investment in Peach Corporation)

498,000

Sept 30/13

Cash
Dividend income
(To record receipt of dividends: 15% of $240,000)

36,000

Dec 31/13

Investment in Peach Corporation

Investment revaluation gain
(To revalue investment to market at Dec 31, 2013)

22,000

Now the investment must be accounted for using the equity method because the investor
has significant influence:
Jan 1/14

Investment in Peach Corporation

Cash
(To record further investment in Peach Corporation)

1,040,000

Oct 31/14

Cash
Investment in Peach Corporation
(To record receipt of dividends: 45% of $250,000)

112,500

Dec 31/14

Investment in Peach Corporation

Investment income (equity method)
(To record share of income for 2014: 45% of $540,000)

243,000

Deemed consideration for 45% of Peach Corporation

45% of net book value at acquisition
Acquistiion differential allocated to capital assets
Annual amortization
Investment income (equity method)
Investment in Peach Corporation
(To provide for amortization of acquisition differential)

42,000

Not revaluing investment at December 31, 2014

Investment value
Balance at January 1, 2014
Second purchase
Share of dividends
Share of income
Amortization of acquisition differential
Balance at December 31, 2014

520,000
1,040,000
(112,500)
243,000
(42,000)
1,648,500

PART B

This investment is valued at fair value thourgh other comprehensive income for the entire
The percentage ownership is just a guide; if the question says they used FVOCI throughou
that they did not have significant influence, notwithstanding their 25% shareholding.
Jan 1/13

Investment in Ecru Ltd

Cash
(To record purchase of shares in Ecru Ltd.)

150,000

June 30/13

Cash
Dividend income
(To record dividend from Ecru Ltd.: 10% of $100,000)

10,000

Dec 31/13

Cash
Dividend income
(To record dividend from Ecru Ltd.)

10,000

Investment revaluation loss (OCI)

Investment in Ecru Ltd.
(To record revaluation at year-end)

30,000

Jan 1/14

Investment in Ecru Ltd

Cash
(To record purchase of shares in Ecru Ltd.)

June 30/14

Cash
Dividend income
(To record dividend from Ecru Ltd.: 25% of $100,000)

25,000

July 1/14

Investment in Ecru Ltd

Investment revaluation gain (OCI)
(To revalue holding on date of sale)

35,000

Cash
Investment in Ecru
(To record sale of shares)

70,000

Accumulated other comprehensive income

Retained earnings
(To transfer realized gain to retained earnigs)
Dec 31/14

Cash
Dividend income
(To record dividend from Ecru Ltd.: 20% of $100,000)

195,000

1,000

20,000

Investment in Ecru Ltd

Investment revaluation gain (OCI)

20,000

Realized gain is 5,000 / 25,000 x (-30,000 + 35,000) = $1,000

Proof of investment account balance:
(150,000 - 30,000 + 195,000 + 35,000 - 70,000 + 20,000)
Balance should be 20,000 shares at $15

comprehensive income:

498,000

0.5

36,000

1.0

22,000

1.0

d because the investor

1,040,000

0.5

112,500

1.0

243,000

1.0

1,560,000 ($520,000 + $1,040,000)

1,350,000 (45% of $3,000,000)
210,000
42,000

42,000

3.0

1.0

2.0
11.0

ve income for the entire time that it is held.

y used FVOCI throughout, that implies
25% shareholding.

150,000

0.5

10,000

0.5

10,000

0.5

30,000

1.0

195,000

0.5

25,000

0.5

35,000

1.0

70,000

1.0

1,000

2.0

20,000

0.5

20,000

1.0
9.0

300,000
300,000

COMMERCE/BUSINESS 453
SPRING 2015
SOLUTIONS TO ASSIGNMENT 1
QUESTION 2 (20 marks)
The investment is being accounted for at fair value through net income:
Jan 1/10

June 1/10

Dec 1/10

Dec 31/10

Jan 1/11

June 1/11

Dec 1/11

Dec 31/11

Investment in Slow Ltd.

100,000
Cash
(To record initial investment in shares of Slow Ltd.)

100,000

Cash
2,500
Dividend income
(To record receipt of June 1 dividend: 10% of $25,000))

2,500

Cash
Dividend income
(To record receipt of Dec 1 dividend)

2,500

2,500

Investment in Slow Ltd.

10,000
Investment revaluation gain
(To revalue investment to $11 per share at year-end)

10,000

Investment in Slow Ltd.

55,000
Cash
(To record additional investment in shares of Slow Ltd.)

55,000

Cash
4,500
Dividend income
(To record receipt of June 1 dividend: 15% of $30,000))

4,500

Cash
Dividend income
(To record receipt of Dec 1 dividend)

4,500

4,500

Investment in Slow Ltd.

15,000
Investment revaluation gain
(To revalue investment to $12 per share at year-end)

15,000

Now the investment must be accounted for using the equity method:
Jan 1/12

Investment in Slow Ltd.

180,000
Cash
(To record additional investment in Slow Ltd.)

180,000

June 1/12

Cash
13,500
Investment in Slow Ltd.
(To record receipt of June 1 dividend: 30% of $45,000))

13,500

June 30/12

Investment in Slow Ltd.

27,000
Investment income
27,000
(To record share of inccome for first half of 2012: 30% of 90,000))

June 30/12

Investment income
7,500
Investment in Slow Ltd.
(To record amortization of acquisition differential
for first half of 2012 -- see calculation below)

July 1/2012

Dec 1/2012

7,500

Investment in Slow Ltd.

201,750
Cash
(To record additional investment in Slow Ltd.)

201,750

Cash
20,250
Investment in Slow Ltd.
(To record receipt of Dec 1 dividend: 45% of 45,000)

20,250

Dec 31/12

Investment in Slow Ltd.

40,500
Investment income
40,500
(To record share of inccome for second half of 2012: 45% of $90,000)

Dec 31/12

Investment income
13,929
Investment in Slow Ltd.
(To record amortization of acquisition differential
for second half of 2012 as calculated below)

Dec 31/12

Dec 31/12

13,929

Cash
480,000
Investment in Slow Ltd.
(To record final purchase of shares in Slow Ltd.)

480,000

Investment in Slow Ltd.

145,929
Gain on acquiring control
(To revalue investment to fair value on gaining control)

145,929

Acquisition differential when investment becomes signficant influence:

Fair value of 30% interest (30,000 @ $12)
30% of net book value on that date
(30% of [600,000 + 290,000 + 100,000 - 50,000 + 120,000
- 60,000])
Acquisition differential
Allocated to:
Equipment
Goodwill

360,000

300,000
60,000
60,000
-

Amortization is $60,000 / 4 years or $15,000 per year

Acquisition differential when holding increased to 45%:
Cost of additional 15% interest
15% of net book value on that date
(15% of [600,000 + 290,000 + 100,000 - 50,000 + 120,000
- 60,000 + 90,000 - 45,000])
Additional acquisition differential
Allocated to:
Equipment
Goodwill

201,750

156,750
45,000
45,000
-

Amortization is $45,000 / 3.5 years or $12,857 per year

Amortization from January to June 2012
From holding when significant influence achieved
Amortization from July to December 2012
From holding when significant influence achieved
From additional purchase

7,500

7,500
6,429
13,929

Calculation of gain on achieving control:

Fair value when significant influence achieved
Share of net income -- Jan to June 2012
Share of dividends -- Jan to June 2012
Share of amortization of acq'n differential Jan to June
Cost of additional purchase
Share of net income -- July to Dec 2012
Share of dividends -- July to Dec 2012
Share of amortization -- July to Dec 2012
Cost of additional purchase
Carrying value of investment when control achieved
Fair value of investment when control achieved
Gain on achieving control

360,000
27,000
(13,500)
(7,500)
201,750
40,500
(20,250)
(13,929)
480,000
1,054,071
1,200,000 (75,000 shares @ $16)
145,929

0.5

0.5

0.5

1.0

0.5

0.5

0.5

1.0

0.5

1.0

1.5

2.0

0.5

1.0

2.0

f $90,000)

3.0

0.5

3.0
20.0

000 shares @ $16)

COMMERCE/BUSINESS 453
SPRING 2014
SOLUTIONS TO ASSIGNMENT 1
QUESTION 3 (10 marks)
1

10