Problem:

Mr. Thompson is a businessman. He started a business five years ago and it has increased in size gradually for its continuous success. Thompson Inc. is a private company and it uses ASPE for preparing its financial statements. It has completed accounting year on December 31, 2017. At the end of 2017, the financial position statement shows that there is huge amount of surplus cash and Thompson has shown interest in investing a part of the surplus amount to the equity securities of Panna Corporation. It is also a growing company in the same industry. The balance sheets of Thompson Inc. and Panna Corporation as on December 31, 2017 with fair values of assets and liabilities of Panna Corporation are presented below:

Assets:	Thompson Inc.	Panna Corporation
	Carrying Amount	Carrying Amount	Fair value
Cash	$400,000	$10,000	$10,000
Accounts receivable	80,000	25,000	22,000
Inventory	100,000	70,000	75,000
Plant	500,000	165,000	175,000
Patents	100,000	25,000	25,000
Trade marks	-	-	20,000
Goodwill	120,000	10,000	10,000
Total Assets	1,300,000	305,000
Liabilities and Equity:
Current liabilities	$160,000	55,000	60,000
Long-term liabilities	100,000	65,000	60,000
Common shares (At $10 per share)	1,000,000	100,000
Retained earnings	40,000	85,000
Total liabilities and equity	1,300,000	305,000

You, a CPA, CGA, the CFO of Thompson Inc., were asked by Mr. Thompson to give your opinion on the following different situations regarding the

• Accounting requirements for the following investment proposals; and
• Presentation of Financial statement for each independent investment proposals of Mr. Thompson.

Situations:

1. Suppose Thompson purchased 1,000 shares of Panna Corporation at $ 1,100 on January 1, 2018. Show the journal entry for this transaction in the book of Thompson and present the balance sheet of Thompson Inc. after this investment on January 1, 2018.
2. Suppose Thompson purchased 4,000 shares of Panna Corporation at $ 4,500 on January 1, 2018. These shares are traded in Toronto Stock Exchange. Thompson Inc. gained significant influence over the investee (Panna Corporation) by this investment. Explain to Mr. Thompson what will be the appropriate accounting method for this transaction. Show the journal entry for this transaction in the book of Thompson on January 1, 2018.