06 Jan ig Bad Company (BBC) owns 20% of Tiny Company
Big Bad Company (BBC) owns 20% of Tiny Company. Due to anti-trust issues, BBC is restricted from having any sort of say regarding the operation of Tiny Company. As such, BBC has elected to account for its investment in Tiny Company by applying the Mark-to-Market Method on the financial statements it sends to the SEC. At the beginning of 20X5, BBC’s investment in Tiny Company was reflected on the balance sheet as $120,000. In 20X5, Tiny Company earned $50,000 in total Net Income and declared and paid dividends totaling $25,000. At the end of 20X5, the fair market value of BBC’s investment in Tiny Company was $180,000.
1) From this information, what would BBC show ($ figure and line item title) on its income statement for 20X5, if anything, to account for its investment in Tiny Company assuming that BBC holds its investment in Tiny as a security available for sale and not a trading security (10 points)?
2) What will BBC show on its year-end 20X5 Balance Sheet to reflect its investment in Tiny Company (5 points)?
3) What would your answers to Parts 1) and 2) above be if BBC applied the Equity Method instead of the Mark-to-Market method in accounting
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