Hat Limited has a total of 200,000 common shares issued. On October 3, 2017, CT Inc. purchased

Question:

Hat Limited has a total of 200,000 common shares issued. On October 3, 2017, CT Inc. purchased a block of these shares in the open market at $50 per share to hold as a long-term equity investment. Hat reported net income of $575,000 for the year ended September 30, 2018, and CT received a $0.25-per-share on that date. Hat's shares were trading at $53 per share at September 30, 2018.
This problem assumes three independent situations related to the accounting for this investment by CT:
Situation 1: CT purchased 25,000 Hat common shares.
Situation 2: CT purchased 70,000 Hat common shares.
Situation 3: CT purchased 200,000 Hat common shares.
Instructions
(a) 1. For situation 1, is it likely that significant influence has been achieved? If it has not been achieved, record all journal entries relating to the investment for the year ended September 30, 2018, using the fair value through profit or loss model. If significant influence is met, use the equity method to record these transactions.
2. From the journal entries prepared in (1), calculate the ending balance in the investment account and any related investment revenue accounts.
(b) 1. For situation 2, is it likely that significant influence has been achieved? If it has not been achieved, record all journal entries relating to the investment for the year ended September 30, 2018, using the fair value through profit or loss model. If significant influence is met, use the equity method to record these transactions.
2. From the journal entries prepared in (1), calculate the ending balance in the investment account and any related investment revenue accounts.
(c) When significant influence is achieved, does the investment have to be accounted for using the equity method if the investor is reporting under IFRS? Does this change if the investor is reporting under ASPE?
(d) For situation 3, is consolidation required? Why or why not? Do alternatives to consolidation exist under IFRS? Do alternatives exist under ASPE?
(e) What does consolidation mean? What happens to the investment account when consolidation occurs? Whose name will be on the consolidated financial statements?
(f) What accounting models would most likely be used for each of the situations listed above if CT Inc. reported under ASPE and the fair value of the Hat shares was unknown?
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...