Refer to the following two independent investments made by A Inc. Explain the most likely relationship A Inc. has with the investee(s) and how A Inc. will report the investment.

1. A Inc. owns 6% of X Inc.. B Inc. owns 18% of X Inc.. The remaining shares of X Inc. are owned by many small investors. The only material asset in Xs books is $2M of Accounts Receivable that X Inc. purchased from A Inc.. X Inc. borrowed $2M from the bank to pay for the Accounts Receivable. Bank required A Inc. to guarantee the loan for X in case of default. The risk of defaulting on the bank loan is minimal as all accounts receivable balances are expected to be collected in full within six months. (3 marks)
2. A Inc. owns 20% of Commons shares of Y Inc. 55% of shares of Y are held by C Inc. and the remaining 25% are held by D Inc. The shareholder agreement states that shareholders of A, C and D must all agree to all major operating and financing decisions made by Y Inc. (3 marks)
3. A Inc. owns 30% of Z Inc. Many small investors own the remaining 70% shares of Z Inc, and almost all are passive shareholders and do not participate in shareholder meetings. A Inc. holds $5M of convertible bonds that if exercised will increase As voting shares to 58% of Z Inc. A Inc. has not exercised the right to convert the debt into common shares as of this date.(3 marks)

Use following example format for each scenario independantly

EXAMPLE:

• Investment: control
• Explain Why: because Lu ownes 100% of shares
• Reporting: consolidate.