It is often said that for every seller there is a buyer. Now, assume that Corporation A purchases (buys) less than 20% of the stocks of another Corporation B at January 1, 2020, and does not exert significant influence over corporation B. Dividends are paid once per year at December 31, of each year.

(a) What method should be used by Corporation A to account for the investment?

(b) What accounts would Corporation A debit and credit at the time of purchase of the investment and how will the amounts in the accounts be determined?

(c) What accounts will Corporation A debit and credit for dividends received, as of December 31, 2020, and how will the amount be determined?

PART 2

Using the same facts as in Part 1 above, but, this time, assume that Corporation A exerts significant influence over Corporation B by purchasing between 20% and 50% of the stocks of Corporation B at January 1, 2020.

(a) What method would be used by Corporation A to account for the investment?

(b) What accounts would Corporation A debit and credit at the time of purchase of the investment and how will the amounts in the accounts be determined?

(c) What accounts will Corporation A debit and credit for dividends received, as of December 31, 2020, and how will the amount be determined?