Chen Inc. acquired 20% of the outstanding ordinary shares of Cho Corp. on December 31, 2010. The

Question:

Chen Inc. acquired 20% of the outstanding ordinary shares of Cho Corp. on December 31, 2010. The purchase price was ¥125,000,000 for 50,000 shares. Cho Corp. declared and paid an ¥80 per share cash dividend on June 30 and on December 31, 2011. Cho reported net income of ¥73,000,000 for 2011. The fair value of Cho’s shares was ¥2,700 per share at December 31, 2011.

Instructions

(a) Prepare the journal entries for Chen Inc. for 2010 and 2011, assuming that Chen cannot exercise significant influence over Cho. The investments should be classified as trading.

(b) Prepare the journal entries for Chen Inc. for 2010 and 2011, assuming that Chen can exercise significant influence over Cho.

(c) At what amount is the investment reported on the statement of financial position under each of these methods at December 31, 2011? What is the total net income reported in 2011 under each of these methods?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...