Hanuman Corp Is a Medium-Sized Corporation That Has Long Dominated

question 77

Essay

Hanuman Corp is a medium-sized corporation that has long dominated their market. With a strong cash-flow position, they have decided to invest excess cash strategically. In particular, Hanuman made periodic investments with their main supplier, Shiva. Although Hanuman currently owns 18% of the common shares of Shiva, it does not yet have significant influence over the operations of this investee company. Hanuman accounts for its investments in Shiva using IFRS 9 and the fair value through other comprehensive income model without recycling.
The controller has gathered the following information about relevant transactions and requests your assistance in preparing required adjusting entries:
1. In 2020, Hanuman acquires shares of Ahimsa Corp and Metta Ltd, for short-term trading purposes. Hanuman purchased 100,000 shares of Ahimsa for $ 1.2 million and the shares currently have a fair value of $ 1.4 million. Hanuman's investment in Metta has not been profitable: the company acquired 45,000 shares of Metta at $ 20 per share and they currently have a fair value of $ 634,500.
2. Before 2020, Hanuman had invested $ 22.4 million in Shiva and, at December 31, 2019, the investment had a fair value of $ 21.3 million. While Hanuman did not sell or purchase any Shiva shares this year, Hanuman declared and paid a dividend totalling $ 2.2 million on all its common shares, and reported 2020 net income of $ 13.6 million. Hanuman's 18% ownership of Shiva has a December 31, 2020, fair value of $ 21,405,000.
Instructions
a) Prepare the appropriate adjusting entries for Hanuman as at December 31, 2020.
b) Prepare the dividend and adjusting entries for the Shiva investment, assuming that Hanuman's 18% interest results in significant influence over Shiva's activities.

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Definitions:

Advantage

A condition or circumstance that puts one in a favorable or superior position.

Cost Driver

A cost driver is a factor that causes a change in the cost of an activity, influencing the cost of production and operation in both direct and indirect cost management.

Support Department

A non-production department that provides essential services and support to the production departments and other parts of an organization.

Work Orders

Instructions or orders for work to be performed, typically including details about the job, materials to be used, and time schedule.