10-400-13 Lecture Notes - Lecture 6: Accounts Receivable, Minority Interest, Share Capital
1-902-06: Use of Accounting Information
Session 9
Updated Summer 2013 by Andrée-Anne Despatie-Gagnon and Marc-André Lamarre, under the supervision of Johane
Frenette 1 of 25
LONG-TERM INVESTMENTS
QUESTIONS
QUESTION 1
ABC Inc. owns several investments in different corporations. The controller is currently preparing
ABC’s consolidated financial statements. He would like you to tell him, for each investment:
▪ the type of investment
▪ the accounting method
▪ the value of the “investment” entry in the consolidated financial statements of ABC as at 31
December 2008
A) Investment in Beaulieu Inc.
ABC acquired 55% of the voting shares of Beaulieu Inc. on January 1, 2008. It paid $450,000 for
these shares. Beaulieu Inc. is posting net income of $100,000 for the year 2008 and it paid
$30,000 in dividends.
B) Investment in Praline Inc.
ABC acquired 30% of the voting shares of Praline Inc. on January 1, 2008. It paid $300,000 for
these shares. Praline Inc. is posting net income of $140,000 for the year 2008 and it paid $40,000
in dividends. Praline’s other shareholders own small blocks of shares, not exceeding 10%.
C) Investment in Frivoline Inc.
ABC acquired 10 % of the voting shares of Frivoline Inc. on January 1, 2008. It paid $160,000 for
these shares. Frivoline Inc. is posting net income of $50,000 for the year 2008 and it paid $10,000
in dividends. On December 31, 2008, the value of 10% of the share of Frivoline Inc. on the
market is $173,000.
find more resources at oneclass.com
find more resources at oneclass.com
1-902-06: Use of Accounting Information
Session 9
Updated Summer 2013 by Andrée-Anne Despatie-Gagnon and Marc-André Lamarre, under the supervision of Johane
Frenette 2 of 25
QUESTION 2
XYZ Inc. carried out the following transactions on January 1, 2012:
a) XYZ purchased 30% of the voting shares of ABC Inc. The other shareholders all own small
blocks of shares (from 10% to 15%). It acquired these shares for the sum of $425,000.
On December 31, 2012 (year-end for XYZ and ABC), ABC realized $48,000 in net income
for the year and ABC declared and paid $12,000 in dividends to its shareholders.
b) XYZ invested $300,000 in a new project (GEF) in collaboration with 456 Inc. XYZ and 456
signed a legal agreement stating they each own 50% of the new project GEF. The operational
and strategic decisions will be made jointly in the new project. GEF realized net income of
$80,000 in 2012. XYZ will use the equity method for the accounting for this new project.
Answer the questions below using the information above:
1) For each of the transactions above, identify:
o the type of investment
o the possible accounting method(s)
o the value of the “investment” entry in the consolidated financial statements of XYZ as
at 31 December 2012
2) TRUE OR FALSE – Justify your answer.
a) The fact that XYZ owns 30% of the voting shares of ABC automatically makes ABC an
associate and therefore XYZ must record the investment using the equity method.
b) XYZ realized investment income of $3,600 from its shares in ABC.
find more resources at oneclass.com
find more resources at oneclass.com
1-902-06: Use of Accounting Information
Session 9
Updated Summer 2013 by Andrée-Anne Despatie-Gagnon and Marc-André Lamarre, under the supervision of Johane
Frenette 3 of 25
QUESTION 3
From the excerpts of the financial statements of Air Liquide, please explain in detail the various long-
term investments that the corporation held on December 31, 2007, describing, for each:
A) The type of investment, based on the typology described in class
B) The type of influence or control Air Liquide exercises, as well as the percentage of the voting
shares that Air Liquide is likely to hold
C) The accounting method for these investments, in both the statement of financial position and the
income statement
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Abc inc. owns several investments in different corporations. He would like you to tell him, for each investment: the type of investment the accounting method the value of the investment entry in the consolidated financial statements of abc as at 31. Abc acquired 55% of the voting shares of beaulieu inc. on january 1, 2008. Beaulieu inc. is posting net income of ,000 for the year 2008 and it paid. ,000 in dividends: investment in praline inc. Abc acquired 30% of the voting shares of praline inc. on january 1, 2008. Praline inc. is posting net income of ,000 for the year 2008 and it paid ,000 in dividends. Praline"s other shareholders own small blocks of shares, not exceeding 10%: investment in frivoline inc. Abc acquired 10 % of the voting shares of frivoline inc. on january 1, 2008. Frivoline inc. is posting net income of ,000 for the year 2008 and it paid ,000 in dividends.
