You are an intern in a CPA firm. Your manager walks into your cubicle and says, One of our clients is thinking about investing in a company. He wants to know how he should account for this investment. Be prepared to discuss it with the client tomorrow.

Write a memo of 500 words to your manager giving your thoughts on how this should be handled by the client.

The situation is the following:

Company F purchased 40% of the outstanding stock of company K on June 30, 20XX.

Both of the companies have a December 31st, year end.

Company K is a publicly traded company and reports its net income to company F.

Company K also pays a hefty dividend to the shareholders of company F.

How should company F report the above facts on its December 31, 20XX balance sheet and income statement?

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