Usually, passive investments are reported at cost on the investor corporation’s balance sheet. However, for passive investments in public corporations, market values are readily available. Why do you think managers of investor corporations would prefer not to have their passive investments in public corporations reported at market value? (In your answer consider the effect that using market values would have year to year on the income statement.)

How should an investor corporation account for the following investments?

a. Ownership of 51% of the shares of a company.

b. Ownership of 20% of the outstanding common shares of a company. These common shares represent 60% of the votes.

c. Ownership of 25% of the shares of a company.

d. Ownership of 0.05% of the shares of a company.