Question

ing Practices, and Manage nt. Gayle Sayres, for su or the year. The company i w the company will have a anagerial Exhies for suggestions pany is in the have a net loss 4 of Hellin c. Explain the meaning Company d. What is meant by noncontrolling interest and IU C12-52. Understanding Intercorporate Investments, Accounting Practice Doug Stevens, controller of Nexgen, Inc., has asked his assistant. Gaw to how the company can improve its financial performance for the ve quarter of the year and projections to the end of the year show the com about $400,000 "My suggestion," said Sayres, "is that we sell 1,000 of the 200.000 Company that we own. The 200.000 shares gives us a 20% ownership of H using the equity method to account for this investment. We have owned this e current market value of the 200,000 shares is about $750,000 above our book, 000 common shares of H. ip of Heflin, and we have his stock a long time and the sur book value for the stock we have been hares, we will own shares from the influential ne the stocks at their current ment, and finish the year "That sale will only generate a gain of about $3,750," replied Stevens "The rest of the story," continued Sayres, "is that once we sell the 10 less than 20% of Heflin. We can then reclassify the remaining 199,000 shares fr category to the trading category. Once in the trading category, we value the stoc fair value, include the rest of the $750,000 gain in this year's income statement, and with a healthy net income." “But," responded Stevens, "we aren't going to sell all the Heflin stock: 1.000 shor but certainly not any more. We own that stock because they are a long-term Indeed, we even have representation on their board of directors. The 199,000 shares do not supplier of in the trading category." Heflin stock; 1,000 shares maybe, Sayres rolled her eyes and continued, "The classification of an investment as trading or not depends on management's intent. This year-end we claim it was our intent to sell the stock. Next year we change our minds and take the stock out of the trading category. Generally accepted as counting principles can't legislate management intent, nor can our outside auditors reau Besides, why shouldn't we take advantage of the flexibility in GAAP to avoid reporting a net for this year?" REQUIRED