Accounting Tutor ONLY

You are an intern in a CPA firm. Your manager walks into your cubicle and says, “One of our clients is thinking about investing in a company. He wants to know how he should account for this investment. Be prepared to discuss it with the client tomorrow.”

Write a memo to your manager giving your thoughts on how this should be handled by the client.

The situation is the following:

◦Company F purchased 40% of the outstanding stock of company K on June 30, 20XX. 

◦Both of the companies have a December 31st, year end. 

◦Company K is a publicly traded company and reports its net income to company F. 

◦Company K also pays a hefty dividend to the shareholders of company F. 

◦How should company F report the above facts on its December 31, 20XX balance sheet and income statement? 

◦Support your answer.