Financial Reporting and Analysis - Turner

When calculating the contribution of the equity portfolio to Foster’s net income for the year (Question 1) why don’t we take off the $187.5 thousand of NI related to the sale of goods to Foster during the year from the $15,000.00 of Foster’s share of investee’s net income for the year. Data are below.

Foster Inc. Equity Portfolio

(year end, C$ thousands)

Characteristic

Security

Alton Inc.

Barker Inc.

Cosmic Inc.

Darnell Inc. (see notes)

Classification

Fair value through profit or loss (held for trading)

Available-for-sale

Available for sale

Associated company

Cost,

beginning of year

$100,000

$150,000

$250,000

$500,000

Market value,

end of year

$97,000

$151,000

$257,000

$506,000

Dividends received during the year

$1,000

$2,000

$3,000

$4,000

Foster’s share of investee’s net income for the year

$15,000

Notes:

· Darnell Inc. has $2 billion in total assets.

· Foster owns 40% of Darnell’s equity and has representation on Darnell’s Board of Directors but does not have effective control.

· At time of acquisition, the fair value of all assets and liabilities was equal to their book value.

· Darnell reported net income of $187.5 thousand on sale of goods to Foster during the year.

Because CFAI already kindly did it for you as in the table you see Foster’s share of Darnell’s net income, so you don’t need to touch this number.

The intercompany transaction info is needed in an other question.