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On February 1, 20X5, Peter Co The Fair Value of the Investment in Mary Shares Was

question 31

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:
$\begin{array}{|r|r|r|} \hline& \text { Net income } & \text { Dividends } \\\hline \text { January } 31,20 \times 6 & \$ 42,000 & \$ 20,000 \\\hline \text { January } 31,20 \times 7 & \$ 35,000 & \$ 15,000\\\hline\end{array}$ The fair value of the investment in Mary shares was $310,000 and $260,000, on January 31, 20X6 and 20X7, respectively.
Required:
A)If Peter uses the FVTOCI 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 for 20X6 and 20X7?

Definitions:

Production Volume

The total quantity of goods or products manufactured within a specified period.

Total Cost

The sum of all costs associated with producing or acquiring an item or service, including direct and indirect expenses.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to fixed costs and profit.

Sales Volume

The quantity of products or services sold by a business within a specific period.