Problem

Comparing Fair Value and Equity MethodsCompany A purchased a certain number of Company B’s...

Comparing Fair Value and Equity Methods

Company A purchased a certain number of Company B’s outstanding voting shares at $20 per share as a long-term investment. Company B had outstanding 20,000 shares of $10 par value stock. Complete the following table relating to the measurement and reporting by Company A after acquisition of the shares of Company B stock.

	Fair Value	Equity
Questions	Method	Method
a. what level of ownership bv Company A of Company B is required to apply the method?	—%	—%

b At acquisition. the investment account on the books of Company A should be debited at what amounts?	$—%	$—%
c. When should Company A recognize revenue earned on the stock of Company B? Explanation required.	—%	—%
d. After the acquisition date. how should Company A change the balance of the investment account with respect to the stock owned in Company B (other than for disposal of the investment)? Explanation required.	—%	—%
e. What is the balance in the investment account on the balance sheet of Company A at the end of the first year?	$—%	$—%
f What amount of revenue from the investment in Company B should Company A report at the end of the first year?	$—%	$—%
g. What amount of unrealized loss should Company A report at the end of the first year?	$—%	$—%