On February 1,20X5,Peter Co

question 25

Essay

On February 1,20X5,Peter Co.purchased 20% of the outstanding shares of Mary Inc.at a cost of $275,000.During the next two fiscal years,Mary Inc.reported the following:

Required:
a.If Peter uses the cost method for recording its investment in Mary,what would the balance in the investment account be at January 31,20X7? What would be reported on the statement of comprehensive income with respect to this investment for 20X6 and 20X7?
b.If Peter uses the equity method for recording its investment in Mary,what would the balance in the investment account be at January 31,20X7? What would be reported on the statement of comprehensive income with respect to this investment?

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Definitions:

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

Cash Flow

The entire sum of funds moving in and out of a corporation, impacting its ability to meet short-term obligations.

Subscale

A specific subset of items within a larger scale, designed to measure a particular dimension of the main construct.

Reliability

The degree to which an assessment tool produces stable and consistent results over time.