Target Company's share capital consists of Class A common shares-unlimited authorized, 100,000 outstanding, 1 vote per share and Class B common shares- 100,000 authorized, 90,000 outstanding, 2 votes per share.If Parent Company bought 75,000 Class A shares, how should they account for their investment in Target Company?

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Quizplus · Accepted Answer

According to the scenario, Parent Company bought 75,000 Class A shares of Target Company. As Parent Company does not have a controlling interest in Target Company, consolidation method is not applicable. Cost method is used when the investment is less than 20% of the total shares outstanding, which is not the case here. Fair value method is used when the investor has significant influence over the investee, which is also not applicable here. Hence, the best method to account for the investment in Target Company in this scenario is the Equity method.

Target Company's Share Capital Consists of Class a Common Shares-Unlimited