Chapter 15, Problem 6PSA

To determine

Concept Introduction:

Investment in securities:

An investment in the security of another company can and influencing investment or non influencing on the basis of type of investment made. An influencing investment in securities provides the controlling or influencing power to the investor in the company.

Influencing investments can be classified into two major types as follows:

1. Controlling interest: In this case the investor holds more than 50% equity of the company and it has control over the management of the company. The accounts of the company are required to be consolidated in such cases.
2. Significant influence: In this case the investor holds more than 20% but less than 50% equity of the company and it has significant influence over the management of the company. The investor follows the equity method to account such type of investments.

To Prepare:

The journal entries for the investment transactions and events assuming no significant influence