On January 1, 2013, Ella Ltd

question 67

Essay

On January 1, 2013, Ella Ltd. purchased 25% of the common shares of JB Inc. for $2,200,000. In 2013, JB reported net income of $280,000 and paid dividends of $100,000.
Required:
a. Which of the following conditions must be met for Ella to use the equity method to report its investment in JB?
i. Ella owns at least 20% of the voting shares of JB.
ii. Ella has control over JB.
iii. Ella has a significant interest in JB.
iv. Ella is able to exercise significant influence over JB.
b. How much income would be reported by Ella in 2013 related to its investment in JB under the equity method?

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Definitions:

Predictive Value

The ability of financial information to help users make accurate predictions about future outcomes.

Future Events

Incidents or occurrences that have not yet happened but are anticipated or expected to occur in the course of a business's operation.

Constraint In Accounting

In accounting, constraints involve the limitations or boundaries that must be considered when preparing financial statements, such as materiality, cost-benefit considerations, and timeliness.

Measurement Principle

A fundamental accounting principle that dictates how transactions should be recorded based on their actual cost in financial statements.