Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000.Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors. Investee Corporation's other comprehensive income during the first period is as follows:
Unrealized Holding Gains from Marketable Securities...$ 3,000
Unrealized Losses from Cash Flow Hedges .......... (2,000)
Other Comprehensive Income.................... $ 1,000
Purchaser Corporation would make the following entry to recognize its share of the items of other comprehensive income of Investee Corporation:

Question

Quizplus · Accepted Answer

The correct entry to recognize Purchaser Corporation's share of items of Other Comprehensive Income of Investee Corporation is to debit Investment in Stock of Investee Corporation for $300, credit Unrealized Holding Losses from Cash Flow Hedges for $600, and credit Unrealized Holding Gains from Marketable Securities for $900. This is because the investment made by Purchaser Corporation in Investee Corporation is to acquire shares of stock from other investors and not through cash payment. The increase or decrease in the fair value of securities held for investment is reported in Other Comprehensive Income, and the investment comes within the scope of equity instruments at FVOCI category that requires recognition of changes in Other Comprehensive Income. Therefore, choice D is the correct option.

Purchaser Corporation Acquires 30% of the Outstanding Voting Common Shares