Posthorn Corporation Essay

Posthorn breadbasket acquired 20,000 of the 100,000 outstanding everyday grapples of seal of approval fraternity on January 1, 2010, for a cash consideration of $200,000 at a time when its shareholders equity amounted to $1,000,000. The shares of both companies were traded on the national stock exchange. During 2010, depression c every(prenominal)er had winnings income of $120,000 and paid divid ceases of $80,000. At the end of 2010, shares of Stamp political party were trading for $11 each. During 2011, Stamp Company had a breathing out of $60,000 and paid dividends of $40,000. Income for the first fractional of the socio-economic class was $80,000 and the loss in the second half of the socio-economic class was $140,000.The dividends were paid on June 30. On July 2, 2011, Posthorn toilet sold 5,000 shares of Stamp Company for a consideration of $12 per share. At the end of 2011, the share price of Stamp Company had fallen to $6 per share. The medium of market analysts foretells was that the share price could be expected to rise to $8 per share over the next five years. Posthorn Corporation has not elected early toleration of the new standards for financial instruments which become good on January 1, 2015.RequiredFor each of the spare-time activity independent assumptions, state the amounts that Posthorn Corporation would overwhelm in its 2011 financial statements, with respect to its investing in Stamp Company for (i) its coronation in Stamp Company (ii) net income and (iii) other(a) comprehensive income. a) Posthorn Corporation accounts for its enthronement in Stamp Company as a fair value through profit and loss enthronization b) Posthorn Corporation accounts for its investment in Stamp Company as an available for sale investment c) Posthorn Corporation accounts for its investment in Stamp Company as a world-shattering influence investment d) Posthorn Corporation accounts for its investment in Stamp Company use the cost order.R equireda) soak up that the account of shares held by Blake is enough to give it prodigious influence over Stergis. gather in all the journal entries that Blake should make regarding this investment in form 5 and course 6. b) Assume that Blake uses the cost method to account for its investment. Prepare all the journal entries that Blake should make regarding this investment in Year 5 and Year 6.Question 3 (15 marks) (Text, Chapter 2, Case 4)On January 1, Year 6, come up Technologies Inc. acquired 40 per centum (10,000 shares) of the voting shares of the Calgana Corp. Toward the end of Year 6, it seemed in all probability that get ahead would have wage for the year of approximately $10,000 (exclusive of earnings attributed to its investment in Calgana) and that Calgana would have earnings of approximately $50,000. The chief executive officer of Progress was disappointed in the forecast earnings of both companies. Prior to Year 6, Progress had increased its earnings by 10 percent each year, and Progress would have to report fare earnings in Year 6 of $45,000 if the crusade was to continue.Requireda) Suppose Progress Technologies Inc. reports its involvement in Calgana Corp. using the equity method. i) If Calgana is to oblige its usual dividend of $0.50 per share, what would be the total report income of Progress? ii) The CEO of Progress suggested that Calgana be directed to declare a surplus dividend of $3 per share. What impact would the excess dividend have on the reported earnings of Progress? b) Suppose that Progress Technologies Inc. reports its investment in Calgana Corp. using the cost method. iii) What would be the total reported earnings of Progress if Calgana say its regular dividend of $0.50 per share? iv) What impact would the additional dividend of $3 per share have on reported earnings of Progress? c) justify fully why the equity method (rather than the cost method) is appropriate for firms that can do significant influence over other companies in which they have an interest.