Posthorn Corporation acquired 20,000 of the 100,000 outstanding common shares of Stamp Company on January 1, 2019, for a cash consideration of $200,000. During 2019, Stamp Company had net income of $120,000 and paid dividends of $80,000. At the end of 2019, shares of Stamp Company were trading for $11 each. If Posthorn Corporation accounts for its investment in Stamp Company at fair value through profit or loss (FVTPL), what will the balance in the Investment in Stamp Company be at December 31, 2019?

Question

Quizplus · Accepted Answer

Under the fair value through profit or loss (FVTPL) accounting method, the investment is recorded at its fair value at each reporting date, with changes in fair value recognized in profit or loss. Posthorn Corporation owns 20,000 shares, and at the end of 2019, each share is worth $11, making the total investment worth $220,000 (20,000 shares * $11 per share). Changes in net income and dividends of Stamp Company do not directly affect the fair value calculation under FVTPL.

Posthorn Corporation Acquired 20,000 of the 100,000 Outstanding Common Shares