Question # 1

Consider the following data for intercorporate investments:

Year Shares Purchased (Sold) Price/Share Price/Share

Jan 1 Dec 31

20x1 200 $80 $70

20x2 (70) 60 80

All sales and purchases are assumed to occur on January 1. Price may vary from price on previous day (December 31).

20x1 20x2

Investee earnings per share $8 $9

Investee dividend per share 2 2

Consider Trading, AFS and the Equity method for classifying investment

Required:

Show the B/S carrying amount for each of the 2 years if the investment is classified as TRADING, AFS and EQUITY METHOD (Show calculations) (8 marks)

Balance Sheet Carrying Value

20x1 20x2

TRADING

AFS

EQUITY METHOD

Show the total income recognized for each of the 3 years if the investment is classified as TRADING, AFS and EQUITY METHOD (Show calculations) (12 marks)

20x2 20x3

TRADING

AFS

EQUITY METHOD