On July 1, 2010 Dynamic Company purchased for cash 40 percent of the outstanding

Question

On July 1, 2010 Dynamic Company purchased for cash 40 percent of the outstanding capital stock of Cart Company. Both Dynamic and Cart have a December 31 year-end. Cart, whose common stock is actively traded in the over-the-counter market, reported its total net income for the year to Dynamic and also paid cash dividends on November 15, 2010 and its other stockholders. Required: a. How should Dynamic report the foregoing facts in its December 31, 2010 balance sheet and its income statement for the year then ended? Discuss the rationale for your answer. b. If Dynamic should elect to report its investment at fair value, how would it balance sheet and income statement differ from your answer to par (a)?

Explanation / Answer

The dynamic company should report such investments at the cost of acquisition if these are long term. If short term, then value at cost or market value whichever is less. Please consider the time devoted to make this reply by rating this as 5star. Thank u in advance. God bless u :)

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