Homework Answers
Investor Inc holding 40% of the stake in Investee co. Shows the significant interest of the Investor Inc in Investee co, hence they would include the income of the investee co in their income statement with respect to the percentage of stake they hold
so Investment income on the year 1 income statement
=40% of the first year income of Investee co
=80000*40/100
=32000
so Investment income on the year 2 income statement
=40% of the first year income of Investee co
= 110000*40/100
=44000
Since the dividend is paid every year by investee co our asset
value of the stock would decrease with respect to the percentage of
stock holding
Balance of the investment account on 12-31 year 1
Initial value =530,000
Dividend =30000*40/100 =12000
Initial value - dividend earned
=530000-12000
=518,000
Balance of the investment account on 12-31 year 2
Initial value year 2=518,000
Dividend =30000*40/100 =12000
Initial value - dividend earned
=518000-12000
=506,000
Note :internals relation of these companies does not impact each other like inventories , office premises, both have to have in separate
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