When these type of stock acquisitions (INVESTMENTS)occur... One company buying s

Question

When these type of stock acquisitions (INVESTMENTS)occur... One company buying stock of another... the volume of stock acquired can fall into 3 catagories.... 1. NonINFLUENTIAL 2. INFLUENTIAL 3. CONTROLLING INFLUENCE THERE ARE DIFFERENT ACCOUNTING TRATMENTS FOR EACH TYPE FOCUS ON Again....Corp. A bought Corp X stock....or $100,000. Corp X had net Income of 1,000,000 this year. They declared cash dividends and Corp A Value of the investment Account to start is $100,000. What is the balance of the 3 accounts listed at the end of this year #1 1090 INTERST IN Co.x #2 25% INTEREST IN Cox DIVIDEND INCOME "EARNINGS FROM INVESTMENTS" INVESTMENTBALANCE l. 2.

Explanation / Answer

Influential Investments:

Meaning:

Influential Investments are those investments, when the investor holds at least 25% stake in the share capital of a company.

Accounting Treatment:

All dividend incomes are credited in a separate account " Earnings from investment".

And Investment is shown at fair value adjusting the income / loss from the investment.

Non - Influential Investments:

Meaning:

Influential Investments are those investments, when the investor holds less than 25% stake in the share capital of a company.

Accounting Treatment:

All dividend incomes are shown in income statement.

And Investment is shown at its basic value.

Statement showing balance of accounts:

Case

Description

Type of investment

Dividend income

Earnings from investment

Investment Balance

1

10% interest in Co. X

Non Influential

$    2,500

$                -  

$          100,000

2

25% interest in Co. X

Influential

$           -  

$         2,500

$          102,500

(100000+2500)

Influential Investments:

Meaning:

Influential Investments are those investments, when the investor holds at least 25% stake in the share capital of a company.

Accounting Treatment:

All dividend incomes are credited in a separate account " Earnings from investment".

And Investment is shown at fair value adjusting the income / loss from the investment.

Non - Influential Investments:

Meaning:

Influential Investments are those investments, when the investor holds less than 25% stake in the share capital of a company.

Accounting Treatment:

All dividend incomes are shown in income statement.

And Investment is shown at its basic value.

Statement showing balance of accounts:

Case

Description

Type of investment

Dividend income

Earnings from investment

Investment Balance

1

10% interest in Co. X

Non Influential

$    2,500

$                -  

$          100,000

2

25% interest in Co. X

Influential

$           -  

$         2,500

$          102,500

(100000+2500)

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