1. On January 1, 2017, Marian Co. acquired as a long term investment for $7,000,000 a 40%...
Question:
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1. On January 1, 2017, Marian Co. acquired as a long term investment for $7,000,000 a 40% interest in an investee when the fair value of the net assets was $17,500,000. The investee has reported the following net losses:
2017 - 5,000,000
2018 - 7,000,000
2019 - 8,000,000
2020 - 4,000,000
On January 1, 2019, Marian Co. made cash advances of $2,000,000 to the investee. On December 31, 2020, it is not expected that Marian Co. will provide further financial support for the investee.
a. Assuming in 2021, the investee earned a net income of $3,000,000, what amount must be recognized by Marian Co. as its share in the 2021 net income of the investee?
b. What amount must be recognized by Marian Co. as its share in the 2020 losses of the investee?
2. On July 1, 2020, Mage Corporation bought 20% of the outstanding inventory shares of an investee for $4,000,000 when the fair value of net assets was $20,000,000. Mage Corporation has the ability to exercise significant influence over the operating and financial policies of the investee. The following information regarding the investee are available:
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